Is gas too cheap?

Old energyIf you filled up your car in California this week, you probably noticed it didn't cost much. Gasoline is a bargain, on average just $3.06 a gallon across the state. Even in high-priced San Francisco, it's cheap: $3.24, and falling fast. Compare this to the statewide average of $4.26 a gallon six months ago, and it's no wonder you noticed.

Supply and demand

There are lots of reasons for this surprising development, but it boils down mainly to a simple matter of supply and demand. The market is awash in new sources of oil, from the fracking boom in North Dakota to production increases in Russia, Iraq, and Libya. Also, the OPEC cartel was unable to agree on production cuts last week, so its large share of world output remains large.

But increasing supply is only half the story. Demand is down, too. The global economy is still ailing. Vehicle efficiency continues to improve. Some hedge-fund managers have pulled back from their too-optimistic investments in oil. Japan is moving back to nuclear power and needs less oil.

So gas is cheap in California, and the oil companies are suffering—a bit. They will suffer more in the future, since this mismatch of supply and demand is likely to recur, though not for precisely the same reasons. If you buy oil company stock now, you're buying high, and you will eventually have to sell low. That's reason enough to divest.

Not as cheap as it seems

But there are even more compelling reasons to sell your shares in oil companies—and to encourage CalPERS and CalSTRS to sell too. 

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Reasons to divest

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