WTI crude reached a six month low, which is positive for nearly everyone other than the oil and gas industry. the price moved below $92, down from close to $110 less than 90 days ago. Part of the reason is that US supplies of oil are higher than expected. But, the most substantial reason is belief that demand in Europe will be historically low for this time of year. A drop in rapid expansion in China’s GDP may also be a cause for lower prices.
The most important effect on the US economy is that gasoline prices are plummeting. The cost for a gallon of regular based on a nationwide average calculated by the AAA is $3.728 compared to $3.727 the day before and $3.907 a month ago. The fall from the year ago price of $3.955 is extraordinary. The price of premium appears ready to drop below $4 for the first time in months.
There is school of thought among some economists that whatever factors might slow US GDP growth in the middle of this year will be partially offset by the lower cost of gas for American families which have to live paycheck to paycheck. With regular gas above $4, many could not be consumers of anything other than bare necessities. As gas prices fall, that should change.
Douglas A. McIntyre
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