WASHINGTON (10/21/14)--U.S. consumers are re-holstering the gas pump with a little more coin left in their pockets recently, as the price of oil has dropped by about 20% since June, slipping to a three-year-low of $80 a barrel (MarketWatch.com Oct. 20).
Those low oil prices have translated into sinking gas prices, which hit $3.29 a gallon in mid-October from a peak of $3.78 earlier this year.
Those cheaper gas prices, driven by a dearth of demand for oil from the struggling global marketplace, in addition to a swelling supply of American-born oil--a rate of production that could soon push the United States ahead of Saudi Arabia as the most prolific oil producer on the planet--also may translate into a healthier U.S. economy, according to some analysts.
At least in the short-term.
It's a boost for consumers, Jennifer Lee, senior economist at BMO Capital Markets, told MarketWatch. Gasoline prices also have a huge impact on consumer confidence, she said.
American households with two cars would save between $25 and $50 a month in fuel costs were these prices to hang on, leaving more cash for consumers to save or, perhaps more importantly for the economy, spend on other goods and services.
Further, cheaper gas prices may release inflationary pressure over the next six months, according to MarketWatch, which could trim the costs of products and services across the board, potentially a big help to consumers who have seen wage growth continually fall flat of late.
But after an initial boost, the long-term effects of cheap oil could prove costly.
Should U.S. exports falter because international demand for oil continues to evaporate, the U.S. economy may ultimately suffer a setback.
The reason? Because oil manufacturing and the energy industry in general has flourished recently, providing a boon for both hiring and overall U.S. growth.
Sustained lower prices could reverse those trends, as the expense of pulling cheap oil from the earth may strip away profitability, which could in turn have a negative impact on inflation market-wide.
The sliding cost of oil, it seems, has Federal Reserve board members paying attention.
St. Louis Fed President James Bullard has even gone public with his belief that the Fed may have to rethink phasing out quantitative easing later this month if inflation continues to weaken (MarketWatch).
While so far Bullard would appear to be in the minority in that regard, European leaders continue to grow more alarmed about the potential for a serious downward spiral in inflation, a development that could knock the U.S. economy back on its heels.