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Crude Economics
Cheap Gas a Prolonged Boon for US Economy

The steep drop in global crude prices understandably brought down prices for refined petroleum products like gasoline, and as any American driving in the last few months has probably noticed, that’s meant less money spent at the pump. In part, the cash saved on gas is being spent elsewhere, as Bloomberg reports:

Purchases adjusted for inflation rose 0.3 percent in January after falling 0.1 percent the prior month, according to Commerce Department data issued Monday in Washington…Receipts at electronics merchants, restaurants, movie theaters and grocery stores were among those benefiting as cheaper gasoline helped household finances.

But there are also signs Americans are squirreling away some of the money they’re saving, which bodes well for future economic growth:

“We expect consumer spending to come in stronger in coming months,” said Laura Rosner, a U.S. economist at BNP Paribas SA in New York and a former New York Fed researcher. “Consumers have received the income and are boosting their saving right now. The income picture is really promising. That bodes well for consumer spending over the medium term.”

A bearish crude market isn’t helping the oil industry, but it is benefiting the American consumer and, as a recent study pointed out, it’s having a net positive effect on the U.S. economy. Meanwhile, shale producers are hard at work finding ways to cut costs and increase efficiencies to stay profitable under slimmer margins. The U.S. experience stands in sharp contrast to that of petrostates like Venezuela and Russia, which are struggling mightily under the pressure of cheap oil.

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  • MartyH

    Gas is up a buck a gallon in CA in the last month. I am not sure why-if it’s the new carbon tax, kinked supply from an explosion at one refinery, maintenance at another, and a strike at a third, if the state is switching blends… But all of a sudden even the cheap gas is $3.09…

    • FriendlyGoat

      What OPEC won’t do, the American free market of sellers may attempt. One reason would be as good as another.

  • Kevin

    Reply to MartyH

    CA has a very insulated market. When there’s a fire at the Chevron refinery gas prices skyrocket.

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