Monday, December 21, 2015

Economy: Gas Prices - Back To Normal

(Drivebycuriosity) -  Finally. Today the average gasoline price at US pumps dropped below $2. Now gas costs on average around $1.98 per gallone, reports the US automobile club AAA (fuelgaugereport).  US drivers pay on average about 20% less than last year at this time ($2.40) and around 40% less than December 2013.

The gas prices are following the collapsing oil prices - but much slower. Today Brent Crude, the international traded type of oil, costs about 40% less than a year ago ($60) and about 70% less than December 2013. Gas prices are responding very slow because their fall is slowed by taxes, regulations and the cartell of refiners. But I believe gas prices have still much room to go further north.

The charts below shows that gas & oil prices are just going back to the normality (  Before the year 2004 gas was cheaper than $2 and hovered many years below $1,50, the price of oil floated between $20 and $40. I think that the extremely high prices of  2007/08 and 2011-14 were a historical exception. Oil & gas prices were anomalous high because hedgefunds and other speculators pumped hundreds of billions into derivates based on oil and inflated the energy prices artificially (I explained that here). I believe that the oil bubble has burst in the recent 18 months and oil & gas prices should stay cheap (thanks to the technolical progress - like fracking - which lowers the cost of oil production (driveby).

Gas prices around - and below - $2 are a boost for the consumer. The AAA estimates "that cheaper gas prices have saved Americans more than $115 billion on gasoline so far this year, which works out to more than $550 per licensed driver" (aaa ). Even if they drive more, consumers have more money to spend for other goods and services which should rekindle the sluggish retail sales. The November retail sales numbers already showed that consumers are responding to cheaper gas (driveby). I assume that retail sales will pick up speed in December and accelerate further in the coming months and so boost the whole economy.

Welcome back normal gas prices.

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