Even though the global stock market has been unstable in recent weeks, gas prices for Labor Day weekend are supposed to be quite low. Oil prices have been down 50% since last summer, and the expected gallon total is around $2.42. Even though this is considered to be good news for consumers, this may signal the slowing down of the global economy.
Typical oil barrel prices currently range from $45-$50, though they have varied with the crazy stock market. There are some predictions that gas may go down to $2.11/gallon in the fourth quarter. And the average gas prices for the year would be around $2.41, which is about a dollar lower than 2014's prices.
Link: http://www.nytimes.com/2015/09/05/business/energy-environment/shrugging-off-market-turmoil-gas-prices-extend-slide.html?ref=business
9 comments:
If oil prices remain or even decrease it could create a tremendous year-end rally for the markets. With the economy recovering and consumers full of excess funds created by low oil prices, retailers could see record sales during the holiday season.
I agree! With more money because of lower gas prices, people may travel more or spend more on holiday gifts. The possibilities could be endless in terms of how people could spend that extra money.
It's concerning to see that there are future predictions for lower oil prices. Right now it seems that the Saudi Arabian oil extractors are trying to keep the price down. This is forcing companies that need to operate on a higher margin, which are mainly U.S. companies, to not extract. In turn, if this persists many extractors who have higher drilling costs will be forced to shut down. Hopefully this will not happen because it will be bad for the overall market.
The lower price may also reduce the variable costs on the production side for some companies. If both demand and supply increase, then there might be inflation. But we will see if the oil price stays low.
Not only is the drastically lower gas prices worrisome for economic growth, but the drop in prices may also negatively affect environmental concerns. With gas prices down, there is a higher incentive to purchase cars and use more gas. With a steadily increasing amount of mileage being covered, the effects of smog and greenhouse gas emissions can only worsen.
Lower Oil prices would have a massive impact on retail costs and essential production. This would result in higher turnover for producer and eventually an increase in marginal profits. This would actually help during the holiday season and will work in the favor for retailers. However; it highly depends on the next coming months as to how much the impact would be of low oil prices.
It will be interesting to see how international trading gets affected after this drop in oil prices. Low oil prices would probably keep inflation rates in the US low as well, since oil prices greatly affect the US economy in general. This is would make the cheaper US goods more attractive to foreign buyers, and so they will be more willing to import goods from the US. If the exports of these US goods continue to increase and that exports become greater than the imports in the US, the trade deficit will be affected and will shrink.
Since there have been so recent disasters in the Gulf of Mexico (like the BP disaster or Hurricane Issac) in recent months or years, there is currently an abundance of oil. In economic theory, as quantity supplied increases, this drives down costs of gas prices. In addition, there are different blends for gasoline. Cheaper blends come out in the winter, which is why gas prices will probably drop in Q4.
I would have to agree with John. The possibility that gas prices will continue to decrease, while beneficial for the consumer, is hazardous or even detrimental for the American economy. As of 2013, the oil rent for the United States (the difference between the value of crude oil production at world prices and total costs of production) was only 0.9%. Whereas, the oil rent for Saudi Arabia was 43.6%. Therefore, as the price of oil continues to decrease, domestic oil companies in the United States will be forced out of the market and companies located in the Middle East will continue to thrive until only a few companies remain. Due to this, I think the question now becomes: "is it time to put a tariff of gasoline prices to help domestic companies stay in business?"
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