Gas Prices Tumbling

Great news if you have a car and like money: Average gas prices are tumbling, down 10% in the last two months:

Source: Energy Information Administration.

Oil explains most of the decline. Crude oil fell from $108 a barrel in March to $84 today.  The lag between oil prices and gas prices means there's a good chance gas will keep falling in the coming weeks, just in time for the summer driving season.

The savings that offers U.S. consumers can't be understated. U.S. drivers consume about 344 million gallons of gas a day. With average gas prices down $0.40 a gallon since March, drivers are likely saving around $4 billion a month compared with earlier this year, or about $30 per household, per month. That adds up.

Now, falling oil prices aren't exactly a positive sign, reflecting a growth slowdown hitting virtually every corner of the world. But gas prices change so quickly and consumers spend enough at the pump that falling prices have in the past provided one of the fastest and most effective forms of stimulus. One study from the Energy Information Administration concluded that a $20 rise in oil prices cuts GDP growth by 0.4 percentage point and pushes unemployment up by 0.1 percentage point. A fall in oil prices of the same magnitude could boost the economy by a similar amount.

But things might be changing. Thanks to a boom in domestic production, the U.S. is on track to import the least amount of oil this year in more than a decade. The old argument used to be that high oil prices were doubly bad for America -- bad for consumers who paid at the pump, and bad because we became more beholden to despotic dictators abroad. One side of that equation is becoming less relevant. High oil prices are still tough on consumers, but rising domestic production increasingly means high oil prices lead to high profits for oil explorers here at home -- indeed, oil and gas employment has surged in recent years to the highest level in two decades, and regions like North Dakota are veritable boomtowns. When you consider how fuel efficient new cars are these days, that could actually be an argument that we should want higher oil prices. Confused? This is a terribly complicated subject full of paradoxes.

Two big oil giants, ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) , offer great dividend yields, and could do terrifically if America's energy boom continues. For another pick, check out The Motley Fool's special report, "The Only Energy Stock You'll Ever Need." It's free. Just click here.

Fool contributor Morgan Housel owns shares of ExxonMobil and Chevron. Follow him on Twitter @TMFHousel. Motley Fool newsletter services have recommended buying shares of Chevron. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (6) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2012, at 6:26 PM, savant55 wrote:

    I don't know where you live but here in the Pacific Northwest, Seattle area to be specific, gas prices are stil extremely high. For example, filling my Camery costs $65.

  • Report this Comment On June 05, 2012, at 6:28 PM, TMFMorgan wrote:

    ^ Yeah, it varies a lot by location. The figures in this article are nationwide. As a fellow Seattle resident, I feel your pain.

  • Report this Comment On June 05, 2012, at 9:26 PM, RickLT wrote:

    Here in the Phx area, prices have only dropped about 20 cents from the peak......about 5%.....after going up about 20% at the beginning of the year.

  • Report this Comment On June 05, 2012, at 10:22 PM, FutureMonkey wrote:

    Still paying $4.35 a gallon in So Cal today.

    Now that we are net exporters of finished petroleum products like diesel and unleaded, our pump prices might start to reflect international demand as mu8ch as local demand.

    Local consumer demand is quite low (lower than 2005) and crude oil prices are depressed ahead of lower world demand, open spigots in Saudi, and a relative stability of the situation in Iran. In the past that would have crashed our prices at the pump. This year, I anticipate continued high prices and record profits for the vertically integrated producers like Chevron and Exxon.

    FM

  • Report this Comment On June 05, 2012, at 11:58 PM, xetn wrote:

    Still only 2 silver dimes in many areas.

  • Report this Comment On June 06, 2012, at 1:35 PM, The1MAGE wrote:

    Crude production is climbing, and is going to continue to climb in America. How fast will depend on how much the Government gets in the way. This will have an impact on the price of oil, but not as significant as I would like, due to the price being determined by the global supply and demand.

    But what I see as more significant is the money that will be flooding into the US. We are just starting to see that spillover into the economy.

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