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Goldman Sachs: This Is The Next Big Risk For Oil

Goldman Sachs: This Is The Next Big Risk For Oil

Goldman Sachs commodities expert Jeffrey…

Cheap Gas’ Latest Victim is Fuel Economy

SUV Sales

Falling prices at the pump have given motorists reason to rejoice continuously over the last year and a half, but they’re not good news for everyone. At least, not for the people who are about fuel economy.

The latest sales-weighted fuel economy ratings report by the University of Michigan Transportation Research Institute revealed that in June, the value of the indicator was 25.3 miles per gallon, down from 25.4 mpg in May. Now, that’s not a huge dip, as Road Show author Andrew Krok notes, but it follows a pattern of declining fuel economy that parallels the decline in gas prices.

The cheaper the fuel, the more people went out and bought huge crossovers, shunning smaller and more fuel-efficient cars. Who needs fuel efficiency when gas is less than US$2 a gallon? American drivers are enjoying the lowest summer gas prices in ten years.

Fed chairwoman Janet Yellen recently announced that savings from lower gas prices reached US$780 on average in 2015, and over the first five months of this year, they stood at US$420. This compares to savings of US$110 in the second half of 2014, when the price slide began.

Related: Why Russia Is A Greater Threat To Oil Prices Than OPEC

In mid-2014, when prices were just starting on the downward spiral, average fuel economy in new U.S. vehicles was 25.8 mpg. That was in August that year, when gas prices had not started slumping to reflect the fall in crude prices.

According to Krok, the average rate of fuel economy will continue around the current levels until the end of the year, unless something dramatic happens and fuel prices skyrocket again, which is pretty unlikely.

At the same time, carmakers are working to increase the default fuel economy of their vehicles in anticipation of stricter Corporate Average Fuel Economy regulations. These will come into effect in the 2020s.

By Irina Slav for Oilprice.com

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