The Upside of Economic Worries: Lower Gas Prices

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Soaring gasoline prices are in the rearview mirror. For the first time in months, retail gasoline prices have fallen below $3 a gallon in places, including parts of Michigan, Missouri and Texas. And the relief is likely to spread thanks to a sharp decline in crude oil prices.

The national average for regular unleaded gasoline is $3.51 per gallon, down from a high of $3.98 in early May. Last week's plunge in oil prices could push the average to $3.25 per gallon by November, analysts say.

Economist Philip Verleger equates it to "a stimulus program for consumers," leaving them more money for clothes, dinners out and movies. Over a year, a 50 cents-per-gallon drop in gasoline prices would add roughly $70 billion to the U.S. economy.

Arthur De Villar, a 48-year-old safety inspector for the Federal Aviation Administration, paid $2.96 for gasoline near his home in Manchester, Mo., a suburb of St. Louis - and he recently replaced his SUV with a four-door sedan.

With three boys at home between the ages of 11 and 14, the money De Villar saves on gas still gets spent. But it goes to the amusement park, a Cardinals baseball game or the movie theater.

"It's far better to be able to put (the money) anywhere other than in the gas tank," he says.

Prices for oil, gasoline and other commodities dove last week along with world stock markets over concerns the global economy is headed for another recession. When economies slow, demand for gasoline, diesel and jet fuel falls as drivers cut back on trips, shippers move fewer goods and vacationers stay closer to home. Oil fell to $79.85 per barrel Friday, a drop of 9 percent for the week. Oil reached a three-year high of $113.93 on April 29.

Economists caution that gasoline savings, while welcome, won't matter much to people if the worst economic fears come to pass.

"Yes it produces some relief, your bill at the gas pump goes down, but it's going down because there are worries that people won't have jobs," says James Hamilton, an economics professor at the University of California, San Diego. "The news has not been good."

And gasoline prices remain historically high. Gasoline has averaged $3.56 this year, the highest yearly average ever. Americans have cut back driving in the face of high prices, but they are likely to spend more on gasoline in 2011 than ever before - close to $490 billion, according to Tom Kloza, chief oil analyst at the Oil Price Information Service.

Kloza says the latest drop in prices will stick around through most of the fall. And while that may only add $20 a month to a typical commuter's wallet, drivers say it matters.

Pat Wolf, 60, a retired information technology professional from East Lansing, Mich. responded with a "Holy Mackerel!" when he got a text from his wife Friday morning that said a station nearby was selling gas for $2.98 per gallon.

Wolf said prices in the area were $3.49 earlier in the week and he had no hope that they'd fall below $3. "It's one other thing in the back of your mind if you are deciding whether to buy some gizmo or other," he says.

Aureleano Duran, a house painter in Dallas, gave the cashier at a RaceTrac gas station $55 to fill up his red Dodge pickup Friday night, but the tank began to overflow before he shut off the nozzle - at $49.21. Duran plans to sock away roughly $30 a week in gas savings. "I'm trying not to spend a lot of it," he said. Then he excused himself: "I've got to go get my change."

Gasoline prices have always varied from state to state, but the gap now is especially big. Drivers along the coasts are paying significantly more than drivers in the middle of the country, analysts say. California drivers are paying the highest average price in the lower 48 states, at $3.89 per gallon on Sunday. Missouri drivers are paying the least, $3.21 per gallon, according to AAA, OPIS and Wright Express.

Differences in state taxes explain much of the gap. Another factor is that most of the oil used by refineries on the coasts comes from overseas, making it far more expensive than oil piped to refineries in the middle of the country from places such as North Dakota and Canada. The coastal refineries must compete with the growing economies of Asia for shipments of oil.

Patrick DeHaan, senior petroleum analyst at GasBuddy.com, says that while he expects the national average to fall to between $3.25 and $3.50 between now and Thanksgiving, some areas could hit $2.50. He says prices in Lansing, Mich., and St. Louis had fallen below $3 already. A price war between filling stations near Bridge City, Texas, pushed prices to $2.62 last week.

"In some of these areas prices are collapsing," DeHaan says.

The trend could reverse, analysts say, if the world economy does not descend into recession. That's because the growth in oil demand from China and other developing nations will more than make up for falling demand in Europe and the United States.

The investment bank Goldman Sachs forecasts that oil will rise to $120 per barrel within the next six months. That's a jump of 50 percent from last week's closing price of just under $80 per barrel.

"Whatever we see gas prices falling to, it won't be the new normal. It will be a launching pad for winter and spring prices," says Kloza, from Oil Price Information Service.

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j_chena

Great Article,
There are housing and high unemployment issues, yet no one is looking at restructuring HUD which is bogged down on implementing loan apps that would put people to work. The current wait for this process can be years. Little is being done to lower fuel prices which effect everything, the current down turn is seasonal and demand driven and has nothing to do with what our leaders have done.


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April 12 2013 at 10:29 AM Report abuse rate up rate down Reply
capenv

But wait! There might be a hurricane. A flood or tornado will shut a refinery down. A few refineries will shut down for maintenace or need to shut down to go back to winterformulated gas. Someone in the middle east farts.Any excuse to create a mythical oil or gas shortage so oil spikes on the markets.This "correction wil be short lived. We seen this act too many times before. I'm going to open a cyanide coolade stand for those of you who can't take it any more.

September 27 2011 at 8:26 PM Report abuse +1 rate up rate down Reply
hivoltpm

"Despite all my rage Im still just a rat in a cage". Remove every existing politician, or make them believe so and change things. There is not a Rep or Dem that is doing anything for the right reasons. For the first time in my life I am truely woried for our futures. There are housing and high unemployment issues, yet no one is looking at restructuring HUD which is bogged down on implementing loan apps that would put people to work. The current wait for this process can be years. Little is being done to lower fuel prices which effect everything, the current down turn is seasonal and demand driven and has nothing to do with what our leaders have done. Ending oil speculation would help this considerability.

September 27 2011 at 8:21 PM Report abuse +2 rate up rate down Reply
capenv

Does anyone remember how Enron screwed California and the rest of the country by creating shortages then dratically raising prices? Ken Lay, Jeffrey Skilling, Andy Faskow? Remember them? The same thing with oil.
Goldman Sachs makes their quarterly oil shortage predictions the run up oil prices at the expense of everyone who drives, purchases or likes to keep warm in the winter and cool in the summer. But the Rep's and Dem's do nothing.
We need oil regulation. But that'll never happen because the poiticians are in bed with Wall Street Executives and the oil companies. I'm so sick of this I'm going to puke.

September 27 2011 at 7:30 PM Report abuse +1 rate up rate down Reply
donnareed4

Here in Indiana they play the lets put gas prices down for a couple days cause then we gonna jack em real high!! We are still over $3.50 in someplaces and down to $3.19 in others. when will speculators and investors learn the world revolves around oil/gas prices? I know oil is a great way to make money on the market but at what cost? 2008 cost us jobs, housing market, companies going bankrupt and once again this is happening again. Don't let a few stories fool you either auto supplies still going broke n closing. The big auto companies maybe selling cars but with fewer suppliers to make parts so off to mexico n china they go! The oil investors / wall street investors need to go to washington and show their dirty cards and prove they are not cheating the American public with the dirty, lying, cheating , greedy ways!!!!! Simple as always, STAY HOME, SHOP ONLY FOR WHAT YOU NEED, SPEND NO MONEY!!!!!! These gas prices going down are a ruse. beware , beware , beware

September 27 2011 at 5:02 PM Report abuse +1 rate up rate down Reply
booca5

none of either rep or dems will address the impact oil has on the ecomony. There is nothing that has a bigger impact on the working class than the cost of fuel to get to their jobs and nothing that will create more jobs than the working class with more money in their pocket.

September 27 2011 at 4:59 PM Report abuse +1 rate up rate down Reply
capenv

During the George W Bush years everyone blame high energy prices on Bush because he's an oil man taking care of his buddies. Obama's taking care of his pals even though he's not "an oil man". The system stinks. We're all a bunch of mice in a cage running in the excercise wheel called the American economy for a few crumbs while the fat cat politicians keep enjoying the good life and get fatter. Someone should nuke us and get it all over with. I'm so tired.

September 27 2011 at 12:02 PM Report abuse rate up rate down Reply
kastmaster2105

UP near $5 this morning...oil that is....makes me sick....

September 27 2011 at 11:45 AM Report abuse rate up rate down Reply
croone22

Yep! Up $2 and change today. The pigs just can't get enough of your money. And Obama and his crew don't have a clue as to how to stop the robbery at the pump. And the sad part is that most Americans don't either. America is not only financially bankrupt,it is intellectually and morally bankrupt and has lost its ability to distinguish between right and wrong.
you have to see the cause to fix the problem. Unfortunately,what we have now is the blind leading the blind. Reminds me of that old Sinatra favorite-you know-"Bring in the Clowns!"

September 27 2011 at 9:02 AM Report abuse +2 rate up rate down Reply
Matt Dougherty

Gasoline is still way TOO HIGH ! It will never be the same and will remain high forever !!!!

September 27 2011 at 8:35 AM Report abuse -1 rate up rate down Reply