Lower gas prices could mean economic impact down the road

Oct 22, 2014, 8:45 PM | Updated: Oct 23, 2014, 8:26 am

Prices at the pump have dropped to four-year lows, saving consumers cash but making economists uneasy.

On Monday, the national average for gasoline is $3.09 per gallon. In 16 states the average gas price dipped below $3. The cheapest gas in the country is in St. Louis, Missouri, where it has averaged $2.79 per gallon, according to gasbuddy.com.

“Prices on average have tumbled 15 cents a gallon so far this month and are down about 50 cents a gallon from the recent peak on June 28,” says MarketWatch.

What’s behind the sudden plunge in prices?

A quick summary of the situation is basic: more supply coupled with less demand, reports CBS MoneyWatch.

There has been a surge in global oil production. “America is in an … oil boom, driven by an explosion of (hydraulic fracturing or “fracking”) in North Dakota, West Texas and other parts of the country. The U.S. is now producing some 8.7 million barrels a day, the highest level in decades,” reports MoneyWatch.

“Libya and Iraq are ramping up production as well,” says MoneyWatch.

Meanwhile, “demand for petroleum products is declining worldwide,” says the New York Times. “The thirst for oil is declining in Europe, where unemployment and industrial activity is down, and Japan, where the use of oil by utilities is being replaced by natural gas and coal.”

Slowing economic growth in China also plays a role in decreased global demand, says MoneyWatch.

The Middle East oil cartel, Organization of Petroleum Exporting Countries, which wants to keep oil prices at $100 per barrel, has been forced by the market to decrease its prices. As of Monday, the international benchmark price per barrel was $85.25, according to the NASDAQ.

“In recent days several members of (OPEC) — Saudi Arabia, Kuwait, Iraq, Iran and the United Arab Emirates — have cut prices to European and Asian buyers as competition for global market share has grown fierce,” the New York Times reports.

The sudden drop in prices may be temporarily good for the consumer, but it has experts fearing international ramifications.

Countries, like Russia and Venezuela, that rely on oil revenue for stability are facing impending recession.

“Venezuelan Foreign Minister Rafael Ramirez called for an emergency OPEC meeting to (persuade) member countries (to) cut production to keep prices above $100,” reports the Associated Press.

The decline in prices is also impacting the stock market. “On Wednesday, the Dow Jones Industrial Average fell, dropping nearly 500 points at one point in the day before recovering. The move seems at least in part to be driven by oil prices, which are also falling,” Fortune reported last week.

The slip in prices could also shock the American oil industry, and in turn slow the economy. If low prices continues, oil companies will need to pull back production in order to reduce costs, reports the New York Times.

And consumers large and small shouldn't get too comfortable with their extra cash.

“The problem is that countries get accustomed to a certain level of income, and then spend,” Edward Chow, a senior fellow at the Center for Strategic and International Studies, told the AP. “It seems like a windfall at first but when it lasts long enough you get used to it.”

At the same time, if consumers don't spend their windfall of extra cash in other realms, like in retail, then the economy will stagnate, says Fortune.

[email protected] | Twitter: @debylene

We want to hear from you.

Have a story idea or tip? Pass it along to the KTAR News team here.

Arizona News

(ADOT Photo)...

Interstate 17 closes in both directions after Monday’s storms in Phoenix

Interstate 17 in Phoenix closed Monday night in both directions for storm-related reasons, traffic officials said. 
21 hours ago
FILE - Protesters gather outside the Capitol to voice their dissent with an abortion ruling, Friday...
Associated Press

Arizona clinic has workaround for abortion pill ban

PHOENIX (AP) — A Phoenix abortion clinic has come up with a way for patients who can end their pregnancy using a pill to get the medication quickly without running afoul of a resurrected Arizona law that bans most abortions. Under the arrangement that began Monday, patients will have an ultrasound in Arizona, get a […]
21 hours ago
(Twitter Photo/@PHXFire)...

Phoenix firefighters battle multiple fires caused by storm activity

Phoenix Fire Department crews tended to incidents caused by Monday's storms, including two greater alarm fires.
21 hours ago
(Pixabay Photo)...

Woman hospitalized following crash involving vehicle and train in Sun City

A woman was hospitalized Monday afternoon after a vehicle and train were involved in a collision in Sun City, authorities said.
21 hours ago
(Facebook Photos L-R/Kimberly Yee, Martin Quezada)...

Watch: Arizona state treasurer candidates Kimberly Yee, Martin Quezada debate

State treasurer candidates for Arizona Kimberly Yee and Martin Quezada faced off in a debate Monday night.
21 hours ago
(AZ511 Photo)...

More than 40,000 Valley residents see outages while dust storm passes

More than 40,000 residents experienced power outages Monday afternoon while a dust storm passed through the Valley.
21 hours ago

Sponsored Articles

Quantum Fiber

How high-speed fiber internet can improve everyday life

Quantum Fiber supplies unlimited data with speeds up to 940 mbps, enough to share 4K videos with coworkers 20 times faster than a cable.
Sanderson Ford

Don’t let rising fuel prices stop you from traveling Arizona this summer

There's no better time to get out on the open road and see what the beautiful state of Arizona has to offer. But if the cost of gas is putting a cloud over your summer vacation plans, let Sanderson Ford help with their wide-range selection of electric vehicles.
Day & Night Air Conditioning, Heating and Plumbing

Most plumbing problems can be fixed with regular maintenance

Instead of waiting for a problem to happen, experts suggest getting a head start on your plumbing maintenance.
Lower gas prices could mean economic impact down the road