WXYZ on lowest gas prices in five years, plus more on lower oil prices

I described the state of the local gas war on Saturday in Falling gas prices make news in Michigan, again.

Thursday, the three stations down the street lowered their price for regular to $2.25, while the corner station remained at $2.29.  I expected the corner station would match them.  Instead, it undercut them, dropping its price all the way down to $2.17.  In response, the three stations down the street lowered their prices to $2.22.  That's about what should be expected from Gas Buddy, as that is a dime below the Detroit average of $2.32 on Thursday.  However, the corner station seems to have anticipated a further price drop that arrived Friday, when the Detroit average fell to $2.29.  A dozen cents lower at $2.17 doesn't seem that out of line.

The corner station remained at $2.17 throughout the weekend, then dropped one more notch down to $2.15, matching the three stations down the street.  Since this might just be the low for the year, I filled up the new car with midgrade at $2.25 per gallon.

WXYZ reported on the low gas prices in two videos.  This morning's clip was Lowest gas prices in five years.


As the reporter pointed out, the Detroit average is currently $2.25, so the neighborhood price of $2.15 is perfectly in line with the historic pattern of being a dime lower.

This afternoon, Andy Choi's location shot was Falling gas prices.


In both clips, the customers interviewed expressed joy and relief at the lower prices.  That's exactly what I expect will goose the consumer economy for the next year until gas prices start rising year-over-year.

Follow over the jump for some links I've been storing up about the effects of lower oil prices from New York Magazine, Econbrowser, and the Los Angeles Times.

First, Annie Lowery of New York Magazine described The Cheap-Oil Gift and Curse.

Santa has come early for the American commuter this year, bearing the gift of cheap prices at the pump.

The plunge in the value of crude has filtered through to gas prices in the United States, with the average price of a gallon of unleaded dropping to $2.52, down from $3.24 a year ago. That means a lot of money left over in average families' pocketbooks - especially the lower-income suburban and rural families that spend a disproportionately large amount filling up their tanks.

But markets are not exactly applauding. The price of a barrel of oil extended its drop overnight, and the Dow was down at the opening bell this morning. And despite the surge of consumer spending the drop in gas prices should encourage - and during the holiday season, no less - the Standard & Poor's 500 has fallen about 2.5 percent over the past month.

That is because along with these cheap gas prices has come a huge lump of coal in the form of currency and commodities volatility. With the price of oil below $60 a barrel, countries that rely on oil production have taken a massive hit. At these levels, many OPEC producers are officially in the red - even Saudi Arabia is pitching toward a deficit.

Worst off of all is Russia, hit hard by European and American sanctions for its incursion into Ukraine as well as the drop in the price of crude. The ruble has lost about 50 percent of its value this year. Inflation has spiked. Gazprom, the state-owned oil giant, is reportedly contemplating firing a quarter of its staff. The economy is shrinking, and fast.

Good news for the U.S. is bad news for Russia.  Right now, I'm not wasting any tears for Putin the Brony on His Little Pony, even if he is the Most Interesting Man in the World.


What Lowery described was the situation early last week.  By the end of the week, the story from the Los Angeles Times as Dow jumps 421 points, buoyed by Fed's interest rate stance

The Dow Jones industrial average of blue-chip stocks rose 421.28 points Thursday, its biggest single-day jump in three years and the 13th largest ever. The 2.4% gain left the key index at 17,778.15 and wiped out days of triple-digit losses over the past week.

Last Friday, the Dow closed with its worst week in three years as investors fretted over a seeming free-fall in oil prices, a weakening Russian economy and unease about when and how fast the Fed would start to raise rates.

But Fed Chairwoman Janet L. Yellen put Wall Street at ease Wednesday after Fed policymakers ended a regular two-day meeting by clarifying the group's written policy statement, noting that the central bank would be "patient" in raising rates over three years and that Russia's woes shouldn't affect the U.S. much.
...
Broader indexes also rallied Thursday, greatly extending the gains that began after Yellen's news conference Wednesday afternoon. The Standard & Poor's 500 index rose 48.34 points, or 2.4%, to 2,061.23. The tech-heavy Nasdaq composite index rose 104.09, or 2.2%, to 4748.40.
...
Thursday's gains indicated that the sell-off was overdone, Lonski said, and that the more obvious benefits of falling oil prices — a boon to the rest of the economy and consumers in particular — would add more fuel to a healing U.S. economy.

Indeed, analysts have noted that the falling oil prices will work to keep inflation figures down, lending the Fed even more flexibility in keeping rates low and giving consumers continued access to cheap credit card and mortgage rates.

On Thursday, mortgage rates hit a fresh low for the year. The average for a 30-year fixed loan fell to 3.80% this week, down from 3.93% a week earlier, according to mortgage finance company Freddie Mac.

Lonski said analysts will be keeping an eye on whether falling oil prices spread to other basic commodities — copper, aluminum, zinc — a sign of a global slowdown that could threaten the U.S. recovery.

He said the Fed is likely to remain cautious until the price of oil stabilizes and the risk of global deflation recedes.
...
Stocks had been roiled in the past week as dramatically falling oil prices were seen as both a reflection of slowing global growth and an aggravating factor, especially for Russia, a major European trading partner that is grappling with twin crises of a falling currency and an economic downturn.

Investors also were concerned that if oil kept up its free-fall, problems in the U.S. energy sector, which accounts for about 13% of corporate earnings, would spread to the rest of the economy, starting with lenders holding the debt of fragile and deeply indebted newer oil-shale exploration companies.

The Fed's stance was enough for the markets to shrug off oil's continuing plunge. The spot price for West Texas Intermediate crude fell 4.2%, or $2.36, to $54.11 Thursday, while Brent crude fell $1.20, or 2%, to $60.01.

In a recent note, Moody's Chris Lafakis calculated that the fall in oil prices, even taking into account cutbacks on investment in the oil sector, would by itself add 0.4% to U.S. economic output in the fourth quarter.

"Falling oil prices are unmistakably a positive for the U.S. economy," he wrote.

This happened later the same week that Kunstler foresaw short-term doom in Crash-O-Matic Finance and Greer foresaw even longer term doom in Déjà Vu All Over Again.  As I wrote in PBS NewsHour on lower oil prices, they will get their recession out of instability in the energy section, but not as soon as either of them expects.

While the next year in the U.S. looks good from the perspective of the consumer economy, the world situation doesn't appear as rosy, as James Hamilton of the University of California, San Diego wrote in Oil prices as an indicator of global economic conditions at Econbrowser.

West Texas Intermediate sold for $105 a barrel at the start of July, but ended last week at $58. The most important factor has been surging U.S. production. But another reason oil prices have slid so much is weakness in demand for the product, which may be related to a slowdown of overall world economic growth. Here I comment on the importance of that second factor.

The world economy is slowing down while the U.S. is speeding up, which is why I harken back to 1998-2000.  Hamilton goes over the evidence for softness in the world economy in his entry. Also check the comments, some of which are quite intelligent.