Decline in oil prices results in cheap gas

Posted Monday, Apr. 22, 2013  comments  Print Reprints
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NEW YORK -- A sharp decline in the price of crude oil this month is making gasoline cheaper at a time of year when it typically gets more expensive.

It's a relief to motorists, business owners and transportation companies, including airlines, as well as a positive development for the economy.

In three weeks, the price of oil has fallen by 9 percent to about $89 a barrel. That has helped extend a slide in gasoline prices that began in late February. Nationwide, average retail prices have fallen by 27 cents per gallon, or 7 percent, since Feb. 27, to $3.52 per gallon. Analysts say pump prices could fall 20 cents more over the next two months.

Texas and Tarrant-area drivers are enjoying even lower prices, as is typical. Statewide, regular unleaded averaged $3.36 a gallon Monday; in Fort Worth-Arlington, the average was $3.39.

That's down 20 cents a gallon statewide from a month ago, and down 28 cents a gallon locally in the same time.

The price of oil is being driven lower by rising global supplies and lower-than-expected demand in the two largest economies, the United States and China. As oil and gasoline become more affordable, the economy benefits because goods become less expensive to transport and motorists have more money to spend on other things. Over the course of a year, a decline of 10 cents per gallon translates to $13 billion in savings at the pump.

Gasoline prices typically rise in the late winter and spring as refiners shut down parts of their plants for maintenance and begin making costlier blends of gasoline required by federal clean-air regulations. The trend was earlier and less dramatic this year. Pump prices only came within 15 cents of last year's peak.

Oil production is growing quickly in the U.S. and Canada, boosting global supplies. And some of the factors that pushed prices higher the two previous years -- political turmoil in North Africa and the Middle East and refinery disruptions in the U.S. -- haven't materialized this spring.

The typical U.S. household will spend an estimated $326 on gasoline this April, the equivalent of 7.8 percent of median household income, said Fred Rozell, an analyst at GasBuddy.com. That's $38 less than last April, when households spent 8.8 percent of their income on gas.

"It's the difference between going out to dinner one more time or not," said Diane Swonk, chief economist at Mesirow Financial. "It matters."

The U.S. government releases its initial estimate of economic output during the first quarter on Friday. Economists forecast that the economy grew at an annual rate of 3.1 percent, compared with 0.4 percent in the final three months of 2012.

Philip Verleger, an economist who studies energy prices, says many monthly household expenses are fixed, but gasoline is one of the few big expenses that varies. That means that when gasoline prices rise -- or fall -- people notice.

"This is the equivalent of a pay raise," he said.

Gasoline prices reached a high this year of $3.79 per gallon on Feb. 27. Last year's peak was $3.94, and it came on April 6; last year's low was $3.22 on Dec. 20.

The average price for all of 2012 was $3.63 per gallon. The Energy Department forecasts the 2013 average at $3.56.

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