• 2 days Shell Oil Trading Head Steps Down After 29 Years
  • 2 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 2 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 2 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 2 days Venezuela Officially In Default
  • 2 days Iran Prepares To Export LNG To Boost Trade Relations
  • 2 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 2 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 3 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 3 days Rosneft Announces Completion Of World’s Longest Well
  • 3 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 3 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 3 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 3 days Santos Admits It Rejected $7.2B Takeover Bid
  • 3 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 4 days Africa’s Richest Woman Fired From Sonangol
  • 4 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 4 days Russian Hackers Target British Energy Industry
  • 4 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 4 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 4 days Lower Oil Prices Benefit European Refiners
  • 4 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 5 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 5 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 5 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 5 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 5 days OPEC To Recruit New Members To Fight Market Imbalance
  • 5 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 5 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 6 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 6 days GE Considers Selling Baker Hughes Assets
  • 6 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 6 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 6 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 6 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 6 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 9 days The Oil Rig Drilling 10 Miles Under The Sea
  • 9 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 9 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 9 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

OPEC Eyes $70 Oil

As Brent crude prices remain…

Alt Text

The IEA Is Grossly Overestimating Shale Growth

The IEA’s forecast that U.S.…

Winners And Losers Of Low Gasoline Prices

Winners And Losers Of Low Gasoline Prices

The price drop we have seen at the pump in recent months has been nothing short of spectacular. It has provided the equivalent of a huge tax cut to the US consumer, considerably boosting disposable income. But as my fellow countryman Geoffrey Chaucer said some 640 years ago, all good things must come to an end. So as retail gasoline prices begin their seasonal ascent, let us assess the impact of their precipitous plunge, and what it means looking ahead:

First up, let us take a look at recent action. US retail gasoline prices have fallen for 123 consecutive days, dropping 45% from the highs of late June to $2.03/gal in recent days. Usually we see a much lesser drop of 15 – 20% through the end of each year. Granted, the 45% drop in retail gas prices this time around has been overwhelming due to a ~60% drop in oil, leading retail gasoline prices to a level not seen since early 2009 – when oil prices were last sub-$50:

AAARetailGasolinePrices

Let us not dwell at this time on the detrimental impact of falling oil prices on the US oil and gas sector; that is a topic for another time. Let us focus instead on what such a drop in gasoline means for the US consumer. Before even digging into the numbers, the impact on sentiment is clear to see, for the plunge at the pump has correspondingly given US consumers a profound sense of well-being, pushing consumer confidence to an 11-year high:

SentimentIndex

If we then dig into the numbers, the benefit of lower prices has really ramped up in recent months. From July to November, the average benefit over the five month period was only 15 cents per gallon. But since the start of December to present, that year-over-year benefit has skyrocketed to average close to a dollar. Related: How The Economy Is Tied To Energy

If we see gasoline prices average ~$2.30/gallon this year (as the EIA currently projects), that would be a dollar below the 2014 average of ~$3.30/gallon. If we do the fuzzy math (as I did here), a $1/gallon saving on daily gasoline demand of 9 million barrels a day equates to ~$400 million per day. Extrapolate that across a year and we’re looking at nigh on ~$150 billion back in the pockets of US consumers (and that’s without taking into account the savings involved in diesel).

YOYGasolineSavings
RestaurantIndustySales

As with everything in life, there are winners and losers, and the situation with gasoline prices is no different. Restaurants and bars are already experiencing the best sales growth in years, with restaurant sales projected to grow by $26 billion in 2015, or 3.8%, in no small part driven by more disposable income. The American Banking Association (ABA) also reported that bank card delinquencies are hovering close to 15-year lows, while loan delinquencies are at a record low as debt is paid down. US economic growth as a whole continues to be driven on by consumer spending. While growth in Q4 last year was just revised down to +2.6% (from +5%) due to lower business investment, consumer spending, which accounts for ~70% of the economy, grew at 4.3%, the fastest pace since 2006.

RidershipResurgence Related: Increasing Demand For Refined Products Will Increase Oil Prices

As for the negatives, the most obvious is that low oil prices threaten clean energy investment. While the price drop is unlikely to impact solar and wind power development, it is likely to dent hybrid and plug in vehicle sales. While US vehicle sales are expected to see their highest January sales in eight years, we are already seeing increasing sales of SUVs and gas guzzlers. (To which President Obama yelled ‘don’t do it!’).

Public transport is also bracing itself for a drop in use. As the chart here shows, ridership has risen strongly in the last few decades, but could come under pressure from a combination of the free-fall in fuel prices and limited funding for public-transit projects going forward.

We are now at the lowest ebb of retail gasoline prices. As Mr. Chaucer said, all good things must come to an end, and prices will gradually rise through the coming quarter and beyond. That said, the strong likelihood that prices will average a dollar less per gallon than last year is an exceedingly positive development for the US consumer…

By Matt Smith

Source - http://www.energyburrito.com/ 

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News