There have been almost no bright spots during the U.S. economic downturn -- no investor or typical citizen would trade minor pluses for the credit market and economic conditions the U.S. currently faces -- but at least one area of commerce offers some encouraging news. The nation's average price for gasoline has dropped below $2 to $1.99 per gallon, according to a survey by motorist group AAA.
Technically, the price dropped 2 cents to $1.989 per gallon, but the macro point is the important fact: gasoline prices have fallen at their fastest rate since 1981-1983, when prices declined after the end of the 1979-80 oil shock caused by the Iranian Revolution, which devastated Iran's oil sector.
During that period, U.S. gasoline prices fell from about $1.50 per gallon to about $1.10, or from about $3.50 per gallon to about $2.40 in current dollars, economist Peter Dawson said.
Hence, the drop in gasoline prices this late summer / fall has been a record-setter in percentage terms. "The price drop has been stunning. We've dropped 50%, from an average price over $4.00 a gallon to under $2.00, and we've done it in less than a year. That's just stunning," Dawson said. "Historically, it's taken a year or longer for prices to retreat after an oil shock, and in the case of the 1979-1980 oil shock, several years."
Further, Dawson sees continued price relief at the pump for U.S. motorists. U.S. prices should drop another 10-15 cents per gallon nationally, if oil remains in the $50-55 per barrel range, and decline even more if oil heads toward $40. Oil traded early Friday up 51 cents to $49.93 per barrel.
What's the most important impact of lower gasoline prices? It acts like a tax cut, Dawson said. Each $1 drop in oil increases U.S. GDP by $100 billion per year and every 1 cent decline in gasoline increases U.S. consumer disposable income by $600 million, he said.
But with oil shocks (1973-74, 1979, 1990, 2007-08) having preceded every U.S. recession except one (2001) in the last 35 years, the question remains why hasn't the United States reduced its dependence on oil and made its economy less vulnerable to oil's economically-damaging, boom-and-bust cycles?
"That's a good question and a political one, so I'll leave it to our good elected officials in Congress to figure out," Dawson said.
Oil Analysis: OPEC will meet twice in the next two months, and the member nations may attempt to shore-up oil prices with another production cut. Still, with declining U.S. gasoline demand, and China's oil growth slowing, another OPEC production cut probably will not be enough to prevent oil and gasoline prices from falling further, which is modest good news for U.S. citizens and the U.S. economy.
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Reader Comments (Page 1 of 1)
11-21-2008 @ 2:50PM
jammerski said...
Where?? It's $2.50 in Buffalo NY !! Congressman Higgins says he'll get to the bottom of this ! "YEAH RIGHT!!!!"
11-21-2008 @ 10:08PM
me said...
1.87 in maine