The Market Monitor Minding the Nation's Business
Jonathan Fahey
New York—At some point this will end, perhaps even soon. The price of gasoline will not fall to zero.
But for the first time since 2009, most Americans are paying less than $2 a gallon. Just three months ago experts were shocked when it fell under $3.
“It’s crazy,” says Michael Noel, an economics professor at Texas Tech University who studies oil and gasoline prices. “But for consumers it’s very, very good.”
Consumers and the economies of the US and most of the rest of the world are basking in the lowest prices for crude oil and gasoline in six years.
US crude oil traded Friday just below $46 a barrel and the average price for a gallon of gas was $2.04.
While there are some losers, such as oil companies, the oil-producing states and the oil-exporting countries that benefited from $100 a barrel for four straight years, most economists agree that the good outweighs the bad.
The drop in prices is acting like an immediate tax cut for drivers, leaving them more money to spend on other things. The Department of Energy predicts lower prices this year will save a typical household $750 compared with last year.
Pump prices have declined for a record 120 straight days, according to AAA, though the size of the declines is shrinking and the streak may soon end. But even if the price rises this spring, as it typically does, driving during summer travel season should still cost less than it has in years.
Diane Swonk, chief economist at Mesirow Financial, expects lower gasoline prices to help the US economy to grow 3.3 percent this year, the highest since the economy grew at that pace in 2005.
“This is one thing that hits the masses, not just a minority of people,” she says. “There’s some benefit for almost everyone.”
It’s also helping businesses with high fuel bills.
Other beneficiaries of low oil prices include some of the world’s biggest economies, according to an analysis by Moody’s: China, the euro zone, and Japan. Their gains will far outstrip the losses that are pinching the budgets of exporting countries such as Opec nations, Russia, and Norway.
Oil drillers that fueled a boom in US production will suffer, along with states such as Texas and North Dakota that rely heavily on drilling activity. Oil service companies have announced layoffs of thousands of workers just in the past week, and the analysis firm Wood Mackenzie expects drilling investment in North America to fall by $50 billion, or nearly 40 percent, over the next year.
But the oil exploration and production business, while sizeable, is small compared to the rest of the US economy. And the US still needs to import oil to meet its needs.
The big drop in oil prices, a result of rising production in the US and elsewhere at a time when global demand growth is weak, means the US is sending fewer dollars overseas.
And drivers are pumping fewer dollars into their gas tanks. The national average price is $1.25 less than a year ago, according to AAA. The national average is over $2 only due to high pump prices in Alaska and Hawaii—$2.78 and $3.28, respectively.
Cheap gas prices are giving some consumers the confidence to buy a bigger car or even a home further from work.
But some analysts warn that, eventually, high gas prices will return.
“The longer these decreases last, the longer people think they will stay around,” says Texas Tech’s Noel. “It’s a dangerous thought to have. It won’t be like this forever.” AP