Gasoline Breaks the Buck

By Brad Zigler

Spot gasoline's now less than $1 a gallon. Don't expect to see that price plastered on your neighborhood petrol stop's placard, though. Only wholesalers are going to get back change for their George Washingtons.

Thursday, January unleaded gasoline futures fell nearly 7% to settle at 96.95 cents a gallon. Since the peak of driving season in July, the oil industry's been having a fire sale on fuel. January futures have fallen more than 72% since summer.

Spot NYMEX RBOB Gasoline Futures

Even with retail markups, this is unmitigated good news for consumers. Regular gasoline sells for $1.69 a gallon at the pumps around my locality. Gas still costs more than two simoleons in the concrete canyons of downtown Manhattan, though. Not far from the New York Mercantile Exchange - the trading venue for gasoline futures - citizens are shelling out as much as $2.89 a gallon. And in Waukegan, just north of Chicago, retailers are in a price war, dealing petrol at $1.51 a gallon.

It used to be said that things got better for you based upon who you know. With motor fuel, it's more where you live.

From an investor's point of view, you can look at this price development in one of two ways. Yeah, it's that old "glass half full or half empty" business.

If you think the breaking of the wholesale buck is just a way station on the way to even lower prices, you can sell futures and enjoy the ride down to the bank with your winnings even more by paying less at the pump for your gas.

If you think that lower fuel prices have actually started to spur demand, you might consider buying gas for a return and not just for octane (the surprising drawdown in fuel supplies reported in this week's Energy Information Administration report might be a herald; see "Oil Demand Perking Or Peaking?").

Retail investors don't have to absorb the risk of futures on the buying side, though. There's an exchange-traded fund, the United States Gasoline Fund (NYSEArca: UGA) that tracks gas futures but can be purchased just like a stock. At last look, UGA shares were changing hands at $18.64 a share.

If gasoline starts to rise, you could use your UGA profits to offset higher costs at the pump. If you're wrong, the half-empty guys will no doubt snicker when they pass you on their way to their banks.