Monday, December 1, 2014

Gas Prices at $2.50 Per Gallon Would Put $1,100 in the Pockets of U.S. Consumers

American consumers are receiving a crystal clear message about much low gasoline prices will favorably affect their wallets and real spending power.

Now if we can just get the politicians to understand simple math and the compelling linkage between the economic principle of supply and demand and how that impacts pricing at the pump, we're in the early innings of a game changing free market for global energy producers.

And here in the good old U.S.A., we're headed for a stronger economy, higher consumer spending, more good jobs, greater tax receipts and additional income and savings for American workers.

U.S. households could save $1,100 from falling gas prices summarizes history in the making and what's going on in the oil patch right now:

"The “tax cut” for American consumers from plunging oil prices is getting bigger by the day — and the U.S. economy will be another big beneficiary, too. . . .

For the typical U.S. family, the savings could amount to nearly $1,100 a year if petroleum stays at current levels. That’s a big chunk of change for many families that spend all they earn each month and who haven’t seen their paychecks rise very much since the end of the Great Recession.
Let’s run through some basic math.

Oil prices have tumbled 34% since mid-June to a five-year bottom and they might go even lower. West Texas crude traded at around $68 a barrel in Monday action, down sharply from a 52-week high of $102.53 in late June. Prices even fell below $63 a barrel for a brief spell.

Skidding petroleum prices have been mirrored at the gas pump. . . . What’s more, regular gas could fall within a range of $2 to $2.50 a gallon nationally if petroleum prices remain near $60 a barrel, history shows. . . .

If regular gas averages $2.80 a gallon in 2015, a typical family could save $700 annually. The savings would rise to almost $1,100 if gas sold at an average of $2.50 a gallon.

The U.S. economy, for its part, could get an annual a boost of 0.3 to 0.4 percentage points in a prolonged period of lower oil prices. So an economy whose gross domestic product is growing 2.6% annually could reach the 3% mark. Historically the U.S. has grown about 3.3% a year, though GDP is averaging 2.2% annually during the latest recovery.

Lower oil prices could also stimulate the economy in other ways and spur the creation of hundreds of thousands of new jobs in sectors such as retail, leisure and hospitality. Consumers would be likely to spend what they save from lower gas prices on other discretionary goods and services.

The one downside from lower prices is slowdown in investment and hiring in the rapidly growing U.S. energy sector. The U.S. is now a global energy kingpin owing to the use of new techniques such as fracking to extract previously inaccessible oil and natural gas reserves.

Yet the energy sector is still just a small part of the overall economy and it directly employs less than 1% of the U.S. workforce despite a rapid increase in hiring.

“Lower oil prices are a clear net plus because we are bigger consumers than producers,” said Michael Moran, chief economist at Daiwa Capital Markets. “It definitely leads to faster growth overall.”

Depressed gasoline prices also act as a shackle on inflation, allowing central banks to keep interest rates low as a means to stimulate more economic growth."

Summing Up

Drill, Baby, Drill should become the mantra of We and People and our government officials.

It's time to place the best interests of We the People ahead of the political interests of Democratic Party leaders and 'green' supporters such as environmentalist Tom Steyer.

It's also time to put our nation's economic and national security interests ahead of those of Russia, Iran and Venezuela.

All President Obama and his team have to do to allow these good things happen for all Americans is to get out of the private sector's free market driven way.

That's my take.

Thanks. Bob.

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