Holiday Cheer: Low U.S. Oil Prices

low oil price

Holiday Cheer: Low U.S. Oil Prices
| published November 26, 2014 |

By Thursday Review staff


Gas prices at the pumps in the U.S. may now be lower than anything seen in several years, and that may translate into a better-than-expected holiday buying season as well as lower costs for those who plan to travel by car for Thanksgiving. Better still: more than a few oil analysts suggest that those oil prices could drop even more between now and January.

But some economists are warning that party won’t last much longer. Demand is still rising worldwide, and that heavy demand—which will only grow more intense over the next few years—is certain to drive the price back up.

In fact, those oil prices are part of a complex good news-bad news puzzle. The good news is that by all measures the U.S. economy is still making slow but steady progress toward full recovery—with GDP up, unemployment down, and prices mostly stabilizing despite a spike in food and grocery costs (the result of severe drought in California, and a hard-hitting winter across the rest of the country). In addition, economic growth in China continues to rise at an even higher rate than in the United States. American GDP rose at 3.5%, and China’s is rising about more than double that rate.

All that growth will eventually mean more demand for oil and gas, which will in turn—almost certainly—push oil prices back upwards, though economists and energy analysts are in disagreement over how high prices could rise next year. In the meantime, U.S. consumers can enjoy relatively low prices at the pump, the lowest in more than three years.

Retailers in the U.S. welcome this unexpected turn of events, as it is widely believed that those low prices at the pump will translate into more vigorous spending on Christmas gifts.

World prices have dropped so low that a meeting of OPEC representatives has been scheduled for this week, and the central topic may be a massive reduction in supply to international markets. That would surely indicate a steady rise in gas prices as early as the New Year. Some OPEC members want the cash infusion that accompanies rising prices; that additional revenue would go a long way in Iran, where sanctions have hurt the economy, and in Venezuela, where recession is still hampering growth.

But the jury remains out on the long-term view on oil prices. One theory suggests that as more countries introduce more forms of alternative energy, falling demand for fossil fuels will inevitably push those prices lower. As supply and demand for alternative fuel and green-energy vehicles gain traction in the United States, demand at the pump will go down. But the U.S. market—like China—has been slow to adopt alternative energy vehicles (or household energy for that matter), and that’s why others feel that demand for oil and gas will keep climbing. And that means that for the next five to ten years we can expect to see prices at the pump continue to rise.

In the meantime, enjoy those low gasoline prices while they remain at their lowest since 2011.

Related Thursday Review articles:

Tesla: A Case of Supply Versus Demand; Thursday Review; November 7, 2014.

Keystone Pipeline Back on the Agenda?; R. Alan Clanton; Thursday Review; November 15, 2014.