Four-dollar gas is quickly becoming a thing of the past, but not before siphoning billions from consumers and forcing the economy into low gear.
After topping $4 a gallon in 17 states and threatening to surpass the all-time record of $4.11, reached in July 2008, regular-grade gasoline now averages $3.69. That’s 29 cents below May’s $3.98 high. Gas prices now average $4 only in Hawaii, Connecticut and Illinois and $4.24 in Alaska.
The slide in prices — linked to rising inventories and soft demand — could continue through summer, soothing fragile consumer sentiment and potentially boosting the sluggish economy.
Consumer spending accounts for more than two-thirds of the economy. With gas prices up $1 above year-ago levels, fuel will cost consumers $50 billion more in the first half of 2011 than they spent in the first six months of 2010, says Moody’s Analytics senior economist Matthew Sweet.
“When gas prices broke $4, you saw a lot of consumers hunker down. It definitely took some steam out of spending,” Sweet says. “It works the same way on the way down. Consumers will remain cautious, but as gas prices head toward $3.50, they’ll take it as a sign of relief and maybe spend a little more.”
Industry analysts are split over how low prices could fall — and for how long — before renewed U.S. and foreign consumption pressures prices.
Benchmark West Texas crude oil settled up $2.07 to $99.37 a barrel Tuesday on the New York Mercantile Exchange after falling 2% Monday to $97.30, the lowest since May 17.
(Source: USA Today)
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9 Responses
The changes in the price of oil are being moved by the value of the dollar. The last few weeks, the dollar has gained strength due to the Europeans having a more serious economic crisis than our own (also caused by the problem of excessive debts). If the value of the Euro stabilizes, and the American dollar continues to be undermined by massive budget deficits, the price of oil will resume climbing (at least as measured in American dollars – if you priced oil in Swiss Francs or in ounces of gold, the price would be falling).
Whoevert wrote this article hasn’t been to Monsey.
Around here, we can’t wait for 4.00 gas. In my neighborhood, there is still nothing less than 4.28!!
For a good laugh, look back at the comments on the YWN articles reporting on the rise of gas prices to $4 per gallon. Many comments blamed the President of the United States, without making any connection between his authority or power and the price of gas. Now that the price has fallen, none of those commenters are thanking the president for causing the price to drop. What does this mean? First of all, it suggests – correctly – that there is little that the US president can do about short-term changes in the price of gas. Second of all, it suggests – correctly – that many of the President’s critics blame him for everything bad but never appreciate anything that goes right on his watch.
akuperma says, In Israel the dollar seems to be losing strength….
Isn’t this an ayin harah?
To nfgo3: When on the presidents watch the gas price doubles, then recedes by 10%, how can he get credit for the reduction? During Bush’s term, the price shot up to 4.00, but then over a period of 3-4 months, it went from 4.00 to 1.60, and was 1.80 when he left office. Bush insituted policies which can be directly connected to the reduction in gas prices, such as rescinding policies that limited offshore drilling. When the price drops in response to that, he gets credit.
Obama demonstrated hostility to the oil industry, and overregulated and limited drilling in every possible way, and the price doubled. Then when market forces cause a slight pullback from near record highs, to a level that it still twice what it was when he began, it is very difficult to give him credit.
#5 – The Shekel has emerged as a strong currency. It is worth about a third more (relative to the dollar) than it was five years ago. The Israeli central bank is very conservative, whereas the American central bank is into “quantatiative easing” (a.k.a. printing money).
The Swiss Franc, the Aussie (Australia dollar) and the Loonie (Canadian dollar) are also strong, as are some third world currencies (particularly Brazil and China).
Fortunately for the US, the Euro is very weak, which is saving the US from disaster for the time being.
No. 7: Let me clarify the intent of my comment no. 4. First, short-term price spikes – up or down – are rarely, if ever, the result of US presidential action. Generally speaking, no president should get “credit” or “blame” for the ups and downs of the price of gasoline, which is a function of the worldwide price of crude oil. My second point has nothing to do with oil or gasoline markets; it has to do with political “markets” and the tendency of some fuzzy thinkers, including some commenters on YWN, to credit or blame a US president for events that go favorably or unfavorably regardless of what the president does.
The amount of oil produced by US offshore oil drilling is a small, small fraction of the worldwide supply of oil and therefore has little effect on the price of oil and gasoline. Presidential “hostility” to offshore oil drilling has little if any effect on worldwide oil supplies.
Do you have information about the output of US offshore oil drilling in the Bush years, and information showing that the Bush smiley face for oil increased that output? Was that output enough to cause the ups and downs that you referred to during the Bush years? Likewise, do you have information about the output of US offshore oil drilling in the Obama years, and information showing that the Obama frowny face for oil decreased that output? And was that output enough to cause the ups and downs of the Obama years? As far as I know, presidential smiley faces and frowny faces about US offshore oil drilling do not affect the worldwide supply of oil. If you have facts to show otherwise, please let us all know.
As for your comment that oil drilling is “overregulated,” I have two words: BP. As in BP oil spill in the Gulf of Mexico. The blowout that killed 11 workers on the oil rig, and lost a lot of crude oil, and fouled the Gulf Coast for at least one season, and maybe even drove up the price of shrimp, was in part the result of the drillers’ failure to comply with the regulations that would have prevented the blowout and enabled the drillers to cap the spill faster. (I realize that the price of shrimp may be of little consequence to YWN readers, but if the shrimp eaters switch to herring, white fish or carp, we will feel it in our pocketbooks.)
You are right about one thing: I have not given President Bush enough credit for pushing down the price of oil following the financial collapse of October 2008. Worldwide crude oil prices had been heading toward $140 per barrel before that collapse, driven by the growth of Chinese and Indian demand. The worldwide economic collapse cut Chinese and Indian demand for oil, and the price has stayed down below $110 per barrel for most of the time since then. If and when the US and the rest of the world recovers from the current economic slump, renewed oil demand will push prices up to $140 per bbl. again. Who would you like to blame for that?