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Sunday, September 21, 2014         

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Plummeting gasoline prices expected to drop even more

By Associated Press

POSTED:


NEW YORK » A summer road trip might not be such a bad idea after all.

Gasoline prices are falling fast. In the past seven weeks, the average U.S. retail prices has dropped 38 cents to $3.60 per gallon. Another 25-cent drop is expected by mid-July.

(In Hawaii the average price is down about 14 cents a gallon over the past month to $4.06 from $4.20.)

When prices approached $4 in early May, drivers were worried that $5 gasoline was a possibility this summer. But since then, oil prices have collapsed, the result of slowing economic growth in developed countries, weaker demand for oil and gas and this week’s decision by the United States and other countries to release 60 million barrels of oil from strategic reserves. Economists say falling prices will benefit consumers by leaving money in their wallets and making them feel freer to spend on travel, shopping and dining.

Economists say that while, for instance, a drop of 25 cents per gallon saves the typical driver only $12.50 per month, it has a huge effect both on the economy as a whole and on the psychology of consumers.

Naveen Agarwal, who helps small businesses and car companies manage fuel costs as CEO of Pricelock in Redwood City, Calif, said he expects drivers will travel farther distances this summer than originally planned. And they’ll spend as they go.

“They’ll be a little bit more liberal about their consumption instead of just having a barbecue in their backyard,” Agarwal said.

For the first five months of the year, gasoline prices went in one direction: up. Growing economies, especially in Asia, burned more gasoline, diesel and jet fuel. Turmoil in the Middle East and North Africa prevented oil from reaching the market and scared oil traders into bidding prices higher.

Oil peaked at $114 per barrel in April. It’s now at $91 per barrel after a 2 percent drop this week.

Energy economists and Wall Street investment bankers caution that oil is likely to rise above $100 again next year, particularly if oil producers struggle to meet rising global demand. Hurricanes in the Gulf of Mexico or further unrest in the Middle East could also boost prices.

Agarwal expects gasoline prices will return to a range of $3.50 to $3.75 per gallon by the end of the year. Goldman Sachs and other investment banks predict oil will rebound next year to levels that would push gasoline above $4 for the first time since 2008.






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