US gas prices fall below $2 — and in some places under $1.60

20 Jan 2016 | Author: | No comments yet »

AAA Michigan: Gas Prices Fall 7 Cents In Past Week To $1.83.

With US oil prices hitting a six-year low on Monday, the average price of a gallon of gas across the country slipped below $2 for the first time since the height of the Great Recession during the winter of 2008-09, AAA reported. “Drivers across the country are celebrating the historic return of cheaper gas prices,” said Marshall Doney, AAA’s president and CEO, said in a statement. “The lowest gas prices in nearly seven years are a holiday gift that few consumers could have imagined when gasoline was $4 a gallon.” So as 91 million Americans get ready to drive at least 50 miles during the holiday season, the question is: What will you do with your $550 a gas savings? So as savings on everything from gasoline to heating oil pile up, a key question is whether consumers will spend those extra dollars and help drive the economy further. The website says the national average could bottom out at $1.85 before rising in the spring as demand rises and refineries shift to federally required summer gasoline blends.

The US has become a large producer over the past several years and OPEC has decided not to cut production, hoping to drive the prices lower — move that would force many US wells to close because they have a higher break-even price than i the Middle East. “With OPEC not in any mood to cut production … it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen told Reuters. “Having said that, long-term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the cap-ex cutbacks … but you’re not going to see that until end-2016.” The price of oil has halved over the past year, dealing a blow to economies of oil producers such as Nigeria, which faces its worst crisis in years, or Venezuela, which has been plunged into deep recession. Last week Saudi Arabia, Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies. “Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. Reflecting the determination among the biggest producers to woo buyers at any cost, Russia now pumps oil at a post-Soviet high of over 10 million barrels per day (bpd), while OPEC output is close to record levels above 31.5 million bpd. Families using natural gas to heat their homes are forecast to see savings of about $117, with a price drop to $560 this coming winter compared to $677 for the 2013-14 winter, estimates Mark Wolfe, director of the National Energy Assistance Directors’ Association, which focuses on home energy assistance.

Economists, including Chris Christopher, director of consumer economics for IHS Global Insight, will be watching key data releases this month including a third-quarter reading on GDP, and consumer sentiment and confidence for December. “Employment reports have been good and falling pump prices are helping consumers feel more confident,” Christopher said. Anticipated savings in monthly home-energy costs could further lift consumers. “If the trend persists, they’ll learn to take that money and put it elsewhere,” he said. Plus, consumers dived into Black Friday deals, though the punch of the retail holiday may be ebbing. “Black Friday is not what it used to be,” Christopher said. “Spending and discounting is happening sooner, so Black Friday’s intensity is not as involved.” Looking ahead, the economist forecasts holiday sales to tally in relatively strong, about 3.4 percent growth year over year. The personal saving rate, which measures the share of a person’s disposable income that is saved, was 5.6 percent in October, a notch higher than the prior month, according to government data. “Why isn’t this money moving into the economy like it should?” asked Wolfe of the Energy Programs Consortium. But Christopher of IHS notes the October data was as much about consumers stashing their income from rising wages, not so much that spending was subdued in certain areas.

Moody’s dropped its price assumption in 2016 for Brent crude oil, the international benchmark, to $43 from $53 per barrel and for West Texas Intermediate (WTI) crude, the North American benchmark, to $40 from $48 per barrel. This combo of ample production and rising gasoline inventories are likely to keep pump prices relatively low. “And barring any unforeseen shifts in market fundamentals, averages are likely to continue to decline leading into 2016,” according to AAA. And despite short upticks, natural gas prices are also at multiyear lows, as warm weather has hit the prime winter heating season. “Heating degree demand has been weaker than expected in pretty much every metro area,” said Paul Hickey, co-founder of the Bespoke Investment Group. “I think the longer-term trend is continued weakness here,” Hickey told CNBC on Dec. 14.

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