Remember earlier this year, when the average nationwide price of gasoline peaked at around $4.00 per gallon? At the time, Resourceful Earth was hesitant to direct blame towards any particular individual or policy:
It’s tempting to assume the rise in gasoline prices is President Obama’s fault, but this isn’t quite fair. A few weeks ago Resourceful Earth posted about why Obama wasn’t responsible for the increase in oil production, though that didn’t stop him from taking credit for it (it’s worth pointing out that oil drilling on federal lands is actually down, and the net increase is due to increases in drilling on private lands). This story is similar: an overwhelming portion of the price of gasoline is determined by world oil markets, which U.S. energy policy cannot have a huge effect on.
A drop in the global price of oil is responsible for the continued drop in the price of gas. Why are global oil prices dropping? Unfortunately, the answer is largely that the European economies are struggling, resulting in lower global demand for oil. While the drop in gasoline prices is excellent for U.S. consumers, who now have more money to spend elsewhere, the slowdown in Europe might also have some negative impacts on the U.S. economy:
One of the very few positives for the world economy over the second quarter — or at least for the majority of the world that imports oil — has been an almost $40 per barrel plunge in the spot price of Brent crude. As the euro zone crisis, yet another soft patch stateside and a worryingly steep slowdown in the BRICs all combined to pull the demand rug from under the energy markets, the traditional stabilising effects of oil returned to the fray. So much so that by the last week in June, the annual drop in oil prices was a whopping 20%. Apart from putting more money in household and business purses by directly lowering fuel bills and eventually the cost of products with high energy inputs, the drop in oil prices should have a significant impact on headline consumer inflation rates that are already falling well below danger rates seen last year.
At least we know that if the economy falls apart again, we can continue to enjoy cheaper gas prices!