This holiday season, consumers can expect a gift that should ease their burdens a bit: modestly lower gasoline prices.
Retail gas prices have been slipping gradually for weeks, thanks to the recent fall in oil prices. Some experts think the national average price for a gallon of gas — now $2.59 — could fall another nickel by Christmas.
“It couldn’t be more timely; it’s welcome news,” said Brian Bethune, chief United States financial economist for IHS Global Insight, who predicts that gas prices will drop to $2.50 a gallon by early next year. “The recent drop in gasoline prices has clearly contributed to an overall improvement in consumer confidence and right now that looks like it could build over the month.”
Economists note that a drop of a few cents a gallon will not make a big difference in the buying power of consumers, who on average spend about 3 percent of their disposable income on gasoline. But gasoline prices pack a psychological punch, in part because gas is the one consumer good whose price is advertised on street corners all over the country.
The recent decline in oil and gasoline prices comes less than two months after a price spike. In late October, crude oil prices rose above $80 a barrel and the national price of a gallon of regular gasoline soared by nearly 12 cents in a single week. Since October, oil prices dropped to about $70, then rose a bit in recent days to just under $73.
Gasoline prices still have not caught up with the initial decline, and they continue to slide, by about 4 cents a gallon in the last week.
Tom Kloza, chief oil analyst at the Oil Price Information Service, said the decline would most likely continue, despite the modest jump in oil prices in recent days. “I still think retail prices will fall by 5 to 10 cents by the end of the year,” he said. Noting that gasoline demand traditionally drops in January, he added, “Over the next 45 days, customers will get relief.”
Maribel Alvarez, a 42-year-old Houston homemaker, said the lower gasoline prices were “making a real difference” for her this holiday season. As she left a department store in the Galleria mall this week with a shopping bag full of sweaters, she added, “I can drive from place to place looking for bargains and it costs me less. Before, I was just shopping around my house.”
Oil analysts say the lower prices reflect the weak fundamentals of the world oil markets.
The demand for petroleum products dropped sharply this year as American and European consumers and businesses used less fuel because of the economic slowdown. Meanwhile, fuel inventories swelled, filling up storage facilities around the United States and forcing some oil companies to charter oil tankers for storage.
Oil demand typically rises in the winter, because of the higher demand for heating fuels. This year, however, the decline has been marked.
Over the last four weeks the nation’s oil consumption fell to 18.77 million barrels a day, nearly a million barrels fewer than over the same period last year and more than two million fewer than during the equivalent period in 2007, according to the Energy Department.
Gasoline consumption has rebounded from its lows reached during last year’s crisis, in December 2008, but it is still down by about 3 percent from two years ago.
The expectation of lower gasoline prices should be welcome news for retailers as they market holiday goods to consumers.
“If gasoline prices continue to go down from here, even modestly, it can only be a positive,” said Michael P. Niemira, chief economist for the International Council of Shopping Centers. But Mr. Niemira cautioned that gasoline prices were “not on people’s minds like they were when gasoline prices were much higher.”
He also noted that gas was about a dollar a gallon higher than this time last year, when the shock of the financial crisis sent oil and gasoline prices tumbling.
Projections by analysts of where oil and gasoline prices are going beyond the next few months range widely, which is not surprising since prices have been a roller-coaster ride in recent years.
Gasoline prices started the year at about $1.70 a gallon but climbed back to nearly $2.70 by June. Since then, national average prices have remained between $2.50 and $2.67.
According to a recent investment report from Commerzbank, a German bank, oil is poised to test a lower trading level around $65 a barrel. If that comes to pass, gasoline prices would probably fall further.
But JPMorgan Chase expects oil prices to turn around by the end of the first quarter next year. Over a longer period, that firm’s analysts see oil rising to $120 a barrel by 2013.
The rise and fall of fuel prices can have at least a short-term impact on economic activity. Larry Goldstein, a director of the Energy Policy Research Foundation, estimates that total economic output drops a half percent for every $10 increase in the price of a barrel of crude oil.
And Mr. Bethune of IHS Global Insight notes that since American consumers spend around $333 billion a year on gasoline for personal consumption, a 4 percent decline can mean about $13 billion in annual savings.
Clifford Krauss reported from Houston, and Jad Mouawad from New York.