Thursday, December 18, 2014

Oil’s Well with Drivers, But Not Consumer Prices

The law of gravity dictates that whatever goes up must come down. But, when it comes to consumer prices that rule seldom applies. Even so, for the time being, it is relevant. 
Local gas prices 12-18-2014
For weeks, drivers have received a premature holiday gift every time they fill their vehicle’s gas tank, as prices have dramatically dropped to the lowest level in years. According to some analysts, motorists are saving an estimated $270 million per day on gasoline compared to a year ago.
Almost seven years ago, a gallon of gas peaked at an all-time high of $4.11. Indeed, rising fuel costs were a campaign issue in 2008. Republicans labeled President Obama irresponsible when he called for an end to generous oil company tax breaks and subsidies, and vowed to re-direct those revenues to develop clean-energy fuels. Newt Gingrich, a contender for the GOP nomination, pledged to roll back prices to $2.50 a gallon — if he was elected.
Mercifully, Newt didn’t get elected, or even nominated. Yet, here we are, more than six years later, and a gallon of gasoline in Brooklyn, with our triple tier of federal, state and local taxes, is flirting with prices ranging from $2.65 to $2.85. Depending on your point of view, we should be grateful that we don’t live in Alaska or Hawaii where the price is more than $3.
Actually, as of Tuesday, in parts of thirteen states, the price-per-gallon dipped below $2.00.
In the weeks after Obama’s re-election, the average national price per gallon dropped to about $1.66. When it did, Americans — from the redwood forest to the Gulf Stream waters (to borrow a lyric from folk legend Woody Guthrie) — rejoiced after months of shelling out $70-$100 to fill gas tanks. Prices were even projected to hit $5 that summer as the campaign heated up. But, fortunately, that plateau was never reached.
With gas prices currently plummeting, which benefits consumers, why did the stock market simultaneously fall? Shouldn’t lower pump prices give drivers a little more capital to spend at the retail level, which would boost the economy? But, on the other hand, the volatility of the stock market — typified by this week's sudden surges — depends on many factors, like the falling price of crude oil that affect the global economy, not just America’s.
According to an economist quoted in a recent Wall Street Journal article, “…every one-cent drop in gas prices means a $1 billion annual decline in energy spending by Americans.”
Yet, it seems that this current boon for the consumer is not good for business. I guess that’s the price — and it’s often a heavy one — we pay for living in a free market, capitalist society.
Analysts and experts, who follow economic trends, credit several factors for lower gas prices, not the least of which is energy policies enacted by President Obama, including an increase in U.S. oil production. They also point to OPEC's recent decision not to cut production, more fuel efficient vehicles and dwindling demand, due to sluggish economies in Europe and Asia.
I get that falling prices adversely impacts oil-producing nations, which currently includes the U.S. Yet, it’s still baffling that as gas prices have been trending lower for a few months, there’s been no similar development at the supermarket where consumer prices have yet to budge and, in some cases, have actually risen. Aren’t fuel costs factored into many items that often drive up prices? But, the costs of food and dry goods have gone up, not fallen? Fresh meat, milk and milk products and eggs increased more than a month ago, and, so far, there’s been no reversal.
Accordingly, just when consumers get some relief at the gas pump and have a few extra dollars to spend during the holiday season shopping, businesses refuse to lower prices so they can mine profits to assure their bottom lines are not disrupted.
As consumers benefit from falling gas prices, in all likelihood, they forfeit that windfall after a trip to the supermarket when they’re apt to leave with just enough to pay for filling those stockings carefully hanging by the chimney.