Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Clean Energy Fuels Corp (CLNE), Westport Innovations Inc. (WPRT): Why Gas Will Never Hit $5 a Gallon

The cost to fill a tank of gas is one of the single biggest expenses most families have aside from the cost of housing. When the cost of gas goes up, it puts a strain on our bank accounts, and when it falls it’s a small reprieve.

So, long term, the cost of gas and oil is very important to the economy, and for the past decade the cost has been moving higher. The good news is that demand for oil has been falling, U.S. production is rising, and alternatives are becoming a reality. With those facts in mind, here are the three biggest reasons gasoline won’t move much higher and why I think we’ll never see $5 per gallon at the pump.

Demand is falling
Demand for oil and gas in the developed world has been declining for nearly a decade, and the pace is increasing. The biggest factor driving down demand for oil isn’t that people are driving less; it’s efficiency in the miles we are driving. A decade ago, SUVs and massive trucks were the most popular wheels on the road; today, small cars, hybrids, and even electric vehicles are replacing them.

European Union Gas and Diesel Oil Demand Chart

European Union Gas and Diesel Oil Demand data by YCharts

Long-term, this trend will only continue. The Obama administration has rolled out a 54.5-mile-per-gallon corporate average fuel economy standard for the auto industry, which will take effect in 2025. Not every vehicle will get 54.5 miles per gallon, but fleets have to improve efficiency dramatically, and as they do, demand for oil both in the U.S. and internationally will fall.

Clean Energy Fuels Corp (NASDAQ:CLNE)Oil isn’t as inelastic as it used to be
It used to be that oil could climb continuously and people would pay whatever it cost, with little alternative. In economics we call that situation inelastic demand, and it’s why OPEC had such power over the global economy.

But over the past decade, the elasticity of oil has increased, and alternatives have a lot to do with it. Clean Energy Fuels Corp (NASDAQ:CLNE) is supplying buses and local trucks with natural gas at a lower cost than diesel, and the company is building a national infrastructure for the trucking industry. Westport Innovations Inc. (NASDAQ:WPRT) is providing the technology to bring that natural gas to the trucking industry, saving money over diesel and lowering demand from one of the biggest users of oil.

As these two companies gain traction in trucking fleets, the availability of natural gas will grow, and even passenger cars will begin to see more natural gas options. The relatively high cost of oil and the relatively low cost of natural gas has made this alternative a reality.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.