After hitting a nearly five year low of $1.63 per gallon, the national average price for a gallon of gasoline has crept up ever so slightly the past couple of days, and now stands at $1.67 per gallon.Â
However, with the economy seeming to get worse with each passing week, nobody really seems to care about or have noticed what many experts believe is the potential bottoming of gasoline prices.
Currently, every state in the continental United States is reporting an average gas price below $2 per gallon, with Utah and Wyoming reporting the lowest average prices at $1.42 per gallon. New York currently has the highest state-wide average price at $1.91 per gallon. Both Hawaii and Alaska are reporting average prices just under $2.50 per gallon.
Given the current economic mess, paying less at the pump has been a relief on two fronts. The first, obviously being the fact we don’t have to pay as much at the pump — gas prices are down nearly 60% from their peak set back in mid-July. The second relief comes in the form of deflationary pressures on food and other consumer products.
Don’t get me wrong, prolonged deflation would be a terrible thing, as it would likely lead to an even longer recession (possible depression) and could easily cause unemployment to climb into the double-digits. However, I think very mild, short-term deflation would be a good thing for stretched consumers.
So, why do some experts believe gas prices have bottomed out? Largely because they think the decline in the price of oil has run its course. After all, it’s widely expected that OPEC will announce today a 2 million barrel per day production cut, which will be on top of whatever Russia decides to cut.Â
Since several OPEC members have come out and said they need oil to be between the $75 and $100 range, it seems to me that more of these production cuts are coming. In turn, this will only drive (no pun intended) gasoline prices higher.Â
But, whether these additional cuts come early next year or later on, nobody really knows. Additionally, since demand destruction seems to have taken hold, it could take a very long time before even drastic cuts by OPEC have a profound effect on the markets.
Oddly enough, with oil around $40 a barrel, or less than a dollar a gallon wholesale, the price of natural gas has not abated even a penny back East. I just paid $314 for 157 therms of gas, about $20 per million BTU. That’s the equivalent of $120 per barrel of oil. I only point out that energy prices are fickle and unpredictable, and that gasoline could just as easily be priced at $1, $2, $3, or $4 a gallon on whimsey alone.