Menu

Gasoline Prices Could Continue to Fall

How low can they go?

We’re talking gas prices here.

Plummeting gasoline prices over the past couple of months are expected to remain low through at least the spring, signaling generally good fortunes for the nation’s economy, said Purdue University energy economist Wally Tyner.

The national average price for regular unleaded gasoline was $2.61 per gallon as of Dec. 12. That is 59 cents lower than a year ago. Indiana prices were averaging about $2.52, and prices in the Lafayette area were even lower, averaging $2.32.

How much more prices will fall is difficult to predict; it will depend on the cost of a barrel of crude oil. Running about $105 for the past couple of years, it was below $59 last week.

“And it is likely to go even lower,” Tyner said. “On balance, this decrease in gasoline prices is quite good for the economy.”

He noted that crude oil prices have fallen $45 over the past few months – enough to increase the U.S. gross domestic product about 1 percent. That is significant considering the GDP – the value of the nation’s goods and services – is increasing by a rate of 3 percent annually.

“That’s a huge boost to the economy,” Tyner said. “It is providing consumers extra income they can spend on other goods and services, which stimulates the economy.”

On the other hand, Tyner said crude oil prices have fallen to the point that the oil industry, including exploration companies, will be cutting their investment budgets for 2015, likely leading to some job losses in that industry. Still, he expects that refining will continue to be profitable.

Gasoline prices have been falling primarily for several reasons:

  • OPEC decided in late November not to cut production, a decision that sent crude oil prices tumbling further.
  • U.S. crude oil production has increased by 1 million barrels per day in each of the past three years, Tyner said. “This U.S. supply increase is a major part of the current price story.”
  • Production also has increased in North Africa and the Middle East. “Libya, for example, is now producing a lot more, but it is not clear how long that will last,” Tyner said.
  • While the U.S. economy is doing well, the economies of the rest of the world are not. Europe and Japan are growing at less than 1 percent per year, and China and India are growing more slowly than normal. Russia is in recession. Tyner said that because oil demand is driven by economic growth, when the growth slows so does global demand for crude oil and products.

“So it is the combination of slow growth in demand and the rapid growth in supply that has led to the current plunge in oil and gasoline prices,” Tyner said.

The wild card to gasoline prices always is the element of the unforeseen, such as an unexpected interruption of supply from a disaster or world events. Tyner said there is no planned maintenance at refineries that would reduce output for the rest of 2014.

Source: Keith Robinson and Wally Tyner, Purdue University 

Recent News

Senate Passes USMCA
1/17/2020

Just one day after the U.S. and China signed a Phase One trade deal, the Senate passed the U.S.-Mexico-Canada Trade Agreement (USMCA). Donald J. Trump ✔@realDonaldTrump One of the greatest trade deals ever made! Also good for China and our long term relationship. 250 Billion Dollars will be coming back to our Country, and we are […]

U.S., China Sign Phase One Trade Deal-Agricultural Purchases Included
1/16/2020

Financial Times writer James Politi reported on Wednesday that, “The US and China have signed an agreement to pause the trade war that has weighed on the global economy for nearly two years, while leaving in place tariffs on hundreds of billions of dollars of Chinese imports. “The so-called phase one deal signed at the White House on Wednesday offers […]

Did That Really Just Happen? USDA Revisions to the 2018/19 Corn Balance Sheet
1/15/2020

The USDA released a number of important reports for the grain markets on January 10, 2019, including the quarterly Grain Stocks report, Annual Crop Production Summary, and the monthly World Agricultural Supply and Demand Estimates (WASDE) report.  In addition to all the estimates that garnered headlines, the USDA also released much less noticed revisions to production, ending stocks, and feed […]

Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now