There’s little joy as the cost of gasoline slides
With stocks getting hammered and banks needing bailouts, consumers still had something to celebrate Monday. Pump prices are sliding and soon may drop below $3 a gallon nationally, pulled down by an oil-price crash that could take crude as low as $60 a barrel by the end of the year, an analyst said.
On Monday, light, sweet crude for November delivery fell as low as $87.56 on the New York Mercantile Exchange before settling at $87.81 a barrel, down $6.07, or 6.4%. Oil last closed below $90 on Feb. 7 and has plummeted 40% from the intraday record of $147.27 reached on July 11.
Retail gasoline prices are moving lower too, but not as far or as fast.
The price of a gallon of self-serve regular gas fell 14.8 cents nationally to $3.484 and 6.9 cents to $3.601 in California, according to the Energy Department’s weekly survey of filling stations. Analysts said that the prices would have dropped even more sharply if not for Hurricane Ike’s interruption of oil production and fuel refining.
But consumers are hurting so much they may barely notice the price relief.
Event production manager Deisy Marquez, who was laid off this year by Metro-Goldwyn-Mayer Inc., said she and her family have “cut our expenses as much as we can” -- dropping their phone and fax machine at home and using only cellphones and e-mail. They eat out less frequently and look for inexpensive restaurants. Cheaper gasoline alone won’t change that.
“Gas is a little lower, but it doesn’t help us much,” the 33-year-old Los Angeles resident said. “It won’t make much difference, and we are down to one motorcycle and one car now.”
In the past, when a sharp drop in fuel prices followed a major upward surge, Americans returned to at least some of their old driving habits. They were more likely to drive their cars instead of taking buses or trains and to run individual errands rather than wait until they could accomplish more in a single trip, said Bruce Bullock, executive director of the Maguire Energy Institute at Southern Methodist University.
But this may be the first time when there are so many other drains on consumer confidence and spending that there might be little, if any, rebound in driving habits.
“The average family is looking for every penny they can get,” Bullock said. “The credit crisis will have an impact too, because a lot of people buy gasoline with credit cards. As disposable income shrinks, people will be purchasing less, and that includes gasoline.”
On Feb. 7, when oil closed at $88.11 a barrel, the average per-gallon price for regular gas was $2.98 nationwide and $3.11 in California, Energy Department statistics show. When oil prices spike, gasoline prices also rise quickly but often fall more slowly. That’s because retailers typically have trouble keeping pace with rising oil prices and try to recapture that lost profit by cutting prices only gradually as oil falls.
Analysts attributed oil’s stunning swoon to a global tightening of credit and growing unease in financial markets, combined with a lack of confidence in what the U.S. bailout plan can really accomplish.
“Tighter credit does two things. It slows down global economic growth and, by definition, it also slows down energy demand,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co.
The nation’s economic prospects were much stronger a year ago, he said, when oil was trading at $75 a barrel and gasoline sold for an average of $2.77 a gallon nationally and $2.99 a gallon in California.
Oil could drop as low as $60 a barrel by the end of the year, Gheit said.
Phil Flynn, vice president and senior market analyst for Alaron Trading Co., said investors were fleeing a commodity they had looked to as a hedge against a weak dollar as recently as a few months ago.
“Oil went up because people were buying on the false assumption that it was a safe haven. Now we are very close to giving all of those gains back and we might even go negative for the year. That shows you what a change in psychology has taken place,” said Flynn, who added that oil could fall to $75 a barrel or slightly less.
Motorists could expect that to translate to much lower gas prices in a very short time, said Tom Kloza, chief oil analyst for Oil Price Information Service. He was one of the analysts predicting gasoline under $3 a gallon nationally.
“There will be no sugar rush because of lowering prices,” Kloza said. “No one is feeling euphoric -- 401(k) values and home values are still in the toilet, and jobs are still in jeopardy.”
That was true at least for Marquez, who said it would take good news on many fronts, not just cheaper pump prices, to change her family’s outlook.
“These economic problems are all around us,” she said. “We have adjusted to the situation.”