Worried About $4 Gas in 2009? You’re Not Alone

The stock market is cratering, home prices show no sign of bottoming and unemployment may very well hit 10% or higher this year.

In the past six months, essentially an entire decade of “created wealth” has been erased.  Surely things can’t get much worse this year, right?

Apparently they can, says a recent poll on Daily Fuel Economy Tip.  According to a survey of nearly 300 people, nearly half expect $4 gasoline to return during 2009.

The poll asked “When do you think gas will return to $4/gallon?”  Here’s how the responses broke out:

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Stimulus Not Enough to Jump Start Car Sales

On February 17, President Obama signed a controversial and massive $787 billion economic stimulus package into law, and hailed the action as a stepping stone towards turning the economy around, as it will lower taxes, incentivize home buying and, according to the Administration, create or save millions of jobs.

Another key part of the stimulus revolves around the automotive industry: anyone who buys a new vehicle in 2009 will be allowed to deduct the sales tax paid on the vehicle from their taxable income.  In a typical scenario laid out by USA Today (see the previous link), an “average” car purchase would reduce an individual’s taxable income by roughly $700 according to a tax estimator.

Not exactly a ton, but in today’s economy, every little bit helps, right?  Well, apparently it does, just not enough to spur car buying.

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Oil Demand Down .25%, Price Down 56%. That’s Odd.

Without a doubt, 2008 was a crazy year for oil and gasoline prices.  Not only did both oil and gasoline hit record high prices — $147 per barrel and $4.12 per gallon, respectively — but both also managed to fall to five year lows.

When looking at the year in total, from January 1 to December 31, the price of oil fell from roughly $100 per barrel to roughly $44 per barrel, or about 56 percent.

Obviously, it is pretty abnormal that one of the world’s most valuable natural resources would lose over half of its market value.  The only real and logical explanation behind the drop in price would be an equally dramatic decrease in world wide demand, right?

Well, in this case, wrong.

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Gas Prices Spike, Sign of Things to Come?

Over the past five days, the national average price of a gallon of regular unleaded gasoline has climbed more than 11 cents, to just over $1.75 per gallon.  The last time the price of gas was this “expensive” was back on December 3.

Although, compared to last summer, I think most of us are willing to live with this relatively mundane price increase.

Most, if not all of the jump in gas prices can be contributed to the fact that the price of oil had climbed from the low $30s just a few weeks ago, to yesterday’s closing price of just under $50 per barrel.

However, today the price of oil fell over 12% to under $43 per barrel thanks to a government report showed a larger than expected increase in crude inventories.

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Gas Prices Bottoming Out? Who Knows?!?

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. 

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.

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Have Falling Gas Prices Affected Your Lifestyle?

Falling gasoline prices have come as a welcome relief to many families, especially in the midst of the current financial and economic upheaval.  Since the middle of July, the price of gas has fallen from a record high of $4.12 to today’s price of $2.39 per gallon – a decline of nearly 42%.

While this decline is certainly very significant and has gone a long way to ease our pain at the pump, has it been enough to drastically alter your lifestyle and spending habits?

According to a recent poll on GasBuddy.com, the responses seem pretty evenly split between those who have been affected by lower gas prices, and those that haven’t.

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Price of Oil Down Over $10, Gasoline Prices Keep Dropping

Thanks to growing fears that the United States has entered a prolonged recession – with some saying we’re about to see the second Great Depression – the price of oil fell over $10 per barrel today and closed below $100 for the first time since last Monday.

Most of today’s market action – marked by the DOW’s single largest daily point drop, the S&P and NASDAQ both losing roughly nine percent and oil’s second largest daily price decline – came about thanks to Congress balking at the proposed $700 billion Wall Street bailout.

This bailout, which was agreed upon in principle Sunday evening, was meant to help restore confidence in the financial markets by having the Treasury Department buy hard to value mortgage backed securities from struggling financial firms in an effort to get them lending to each other, businesses and consumers.

In addition to the House’s vote, several European bank failures helped to push the dollar up against the euro.  As I’m sure you’ve come to find out over the past several months, a stronger dollar tends to push commodity prices lower.

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Clarifying Yesterday’s Post

Apparently I didn’t do a very good job writing the previous post, in which I tried to explain that falling gas prices may not be a good indicator for the economy.

I can see why what I wrote may have been misinterpreted.  In going back and looking at the post from the point of view of someone other than the author, I definitely saw how what I was trying to say didn’t really come across the way it was meant to.

So, I’m going to try this again.

Falling oil and gas prices may not necessarily be a good thing.  The reason being, one of the main contributors behind the falling prices has been demand destruction – i.e. we are using less gas and oil.

Much of decrease in demand has been brought about thanks to a slowing economy.  Businesses aren’t expanding production, people are driving less and not flying as much, etc.  These things I just mentioned are indicators of a weak economy.

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Economic Problems – Less Pain at the Pump, More Pain for you Everywhere Else

The price of oil fell sharply today, thanks to the collapse of investment house Lehman Brothers, and the growing concern that the United States is only in the beginning stages of a prolonged economic downturn.

After falling to as low as $94.13 per barrel, the price of oil closed the trading day at $95.71, which was down $5.47 from Friday’s close.  Today’s closing price represents oil’s lowest price since back in February, and means the value of oil has fallen nearly 35% since hitting a record high of over $147 back in mid-July.

Despite today’s drop in the price of oil, gasoline prices continued to rise across the country thanks to damage caused by Hurricane Ike.  While refinery capacity is slowly coming back up, at the height of the shut downs and evacuations, nearly 25% of the United States’ fuel refinery capacity was out of commission, causing gas prices to climb significantly higher for the first time in over two months.

WHAT DOES ALL OF THIS MEAN FOR YOU?

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High Gas Prices Forcing You to Drive Less?

Over the span of the past 18 months, the national average price of gasoline has jumped from a low of $2.13 per gallon (February 2007) to a high of $4.12 (July 2008), back down to today’s current price of $3.69.

While the price decline over the past two months has come as a relief, the 75% price increase between early 2007 and now is clearly unprecedented and has to have made a profound impact on many of our personal finances.

And since money doesn’t grow on trees – especially in this slumping economy – chances are you’ve had to cut back somewhere in order to account for having less money in your pocket. According to a recent poll on GasBuddy.com, nearly 70% of us have reduced the amount of driving we do in order to cope with higher gasoline prices.

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