Dramatic Gas Price Drop May Not Be Good News
It's good news for consumers in lots of ways. Lower fuel prices can ultimately mean lower costs of goods because, basically, everything moves by truck in this country. It's also good news simply because we'll be paying less at the pump. HIS Global Insight economist, interviewed in USA Today, says a drop to $3 a gallon could mean roughly $114 billion in extra consumer spending power.
The article also had this to report. Thursday, benchmark West Texas Intermediate crude oil fell 4 percent to $78.20 a barrel, the lowest price since early October and off 20% year-to-date. Coupled with slumping wholesale gasoline contracts for fall delivery, "the market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving," says Tom Kloza of the Oil Price Information Service. Nationally, regular gasoline averages $3.47 a gallon, down 47 cents from this year's high in April.
So, why is all of this a problem? On the new car front, it's going to create a glut of compact and sub-compact cars at a time that manufacturers are ramping up production of them. OEMs, reacting to rising gas prices the last couple years, started to emphasize the need for compacts. Americans started buying them out of fears that gas was going to eventually hit $5 a gallon.