Motorists should see relief with falling gas prices
Wednesday, August 10, 2011
DENVER (AP) — Gasoline cost nearly $4 a gallon this spring. Now it’s inching closer to $3.
That drop is giving worried families some relief and easing one of many drags on the economy.
Gasoline has fallen to $3.65 a gallon, down 30 cents from early May. If it hits $3.35 next month, as some experts predict, that would leave the typical driver an extra $15.
While the savings are small, they couldn’t come at a better time. People feel less wealthy as stocks nosedive, the value of 401(k) accounts falls and the fear of another recession takes hold.
Even if the difference is just enough for a couple of Big Macs or a trip to Walmart, it is a psychological boost for consumers.
“It’s not the saving of the economy but it definitely will put a smile on a few consumers’ faces,” says Michael Lynch, president of Strategic Energy & Economic Research.
Gasoline prices track oil, which has fallen more than $30 to just under $80 per barrel since early May. Gasoline usually lags a drop in oil prices by a few weeks as refiners buy the cheaper crude, change it into fuels and ship it to gas stations.
Most of crude’s drop has come in the last two weeks as the U.S. lost its top credit rating and reports showed economic growth stalling. Analysts say oil’s decline could translate to a drop in pump prices of a quarter a gallon within two weeks and as much as 30 cents within a month. The typical driver uses 50 gallons of gas a month.
Rusty Edwards, an assistant manager at a retail cell phone shop in St. Louis, says the drop at the pump was like getting a small raise at work. It typically costs Edwards, 35, about $60 or more to fill up his truck. On Tuesday morning, it cost $47.
“It just makes me feel that hopefully, things are getting closer back to the way they were,” when gas cost around $3 a gallon, he says. That was back in February.
Still, Edwards says he doesn’t feel confident about spending freely. He needs more customers in his store. “People aren’t spending what they used to,” he says.
A drop in oil prices typically helps the economy because oil is used in a wide variety of products — gasoline for motorists, jet fuel, diesel, which is the primary fuel for shipping goods to stores, and even some products that use chemicals.
Airline passengers could see lower fares by this fall, according to Basili Alukos, an analyst for Morningstar. Airlines would save money on fuel — their biggest expense, more than one-third of all costs — and pass those savings on to fliers.
As a rough estimate, a $10 drop in oil prices could increase economic growth by 0.2 percentage point to 0.3 percentage point. But even that growth depends on broader economic factors such as consumer spending or investment by business.
The economy grew at an annual pace of just 0.8 percent in the first half of 2011, its
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