Oil Investing: Understanding High and Low Gas Prices

Pinnacle Digest writes: When long time Pinnacle Professor, Frank Holmes, looks at a gas station sign he doesn't just see the price. Frank believes the key to investing in natural resources lies in one's ability to translate the price of gas into understanding which companies will benefit from its rise or fall, changing government policies and growing consumer demand. All of these issues are tied together and with the volatility of gas prices, there is always a winner and loser.

Holmes compares the fiscal impact of falling gas prices to a form of stimulus. The Wall Street Journal reported recently that, “a 10-cent drop in prices can add about 0.1 percent to disposable household income.” When the price of gas goes up, Americans drive less and spend less because they feel less rich. When it goes down, the opposite occurs. It is very psychological and if you commute to work or drive a lot, we're sure you can relate.

The cost of a gallon is all relative. Although $3.75 per gallon in the United States might feel expensive to some people, it's less than half of what a country like France pays for a gallon at $8.06. Brazil is not much better at $6.93 per gallon. Russia on the other hand, has some of the cheapest gas in the world at $3.22 per gallon.

Holmes examines how government policies impact its citizens to travel by foot, car, bus or train. How government policies impact global resources and demand for certain infrastructure products is key for the resource investor to understand.

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