A recent report from the Energy Information Administration (EIA) is forecasting the retail price of regular gasoline in the U.S. to average $2.38 per gallon this summer. If this forecast holds, it would be the second-lowest summer average gasoline price since 2005. The average price last summer was $2.23/gal.
The primary reason for the lower gas prices are lower-than-forecast crude oil prices. Originally projected at $54 per barrel, updated trends show a $50/b cost throughout the summer driving season. Crude oil prices have fallen in recent months as U.S. oil producers have increased drilling activity and production. Similarly, increased production levels in Libya and Nigeria have contributed to higher quantities and lower prices.
These developments have served to offset some of the production cuts agreed to by members of OPEC (Organization of the Petroleum Exporting Countries) and others that were intended to reduce elevated oil inventory levels. EIA reports that U.S. domestic gasoline demand fell by 1.1 percent in the first quarter of 2017 from the record level of demand seen in 2016, but remains 3.1 percent above the previous five-year average. Strong demand in export markets has also kept U.S. refineries at near-record output levels.
Insights
The impact of gas prices can be felt throughout the industrial sector. Increased production levels at U.S. refineries is obviously good news for the workers and suppliers tied to this market, but the economic ramifications go much further than that. Although about 75 percent of the crude oil that makes its way through the refinery is used for some kind of fuel, lower crude oil prices also impact a number of other industries that use oil as a feedstock.
These include asphalt, plastic, and rubber product manufacturing. Lower material costs translate to healthier profit margins and more resources being available to these processors in developing new products and creating more jobs.
Additionally, lower gas prices can help stimulate spending in other areas. By spending less at the pump, the driving public can stretch their purchasing dollar further. Judging by recent economic reports, this includes increased spending on consumer electronics and textiles, including furniture and clothing.