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Gasoline: How low can it go?

At the beginning of May, if I had blogged that gas prices (1) wouldn’t even hit last year’s high and (2) would be steadily dropping by Memorial Day, I’ll bet your comments would have suggested I’m smoking something. I had predicted they’d actually be going up.

The timing of the current drop in gas prices couldn’t be better for boaters and the marine industry. Yes, I was one of those who expected gas would average more than $4 per gallon on the highway and top $5 per gallon at marinas. Being wrong feels good.

Falling gas prices gives everyone — boaters, dealers and marinas alike — a psychological shot in the arm. Lower prices will surely lead to increased boat usage this summer, lifting gas sales at marinas and producing additional work for service departments. Equally important for our sales teams is that the sting of high gas prices — a barrier to entry for many potential customers — is significantly reduced.

Gas prices in the U.S. are falling because demand is down 6.6 percent this year. According to the Energy Information Administration, gas has dropped an average of 15 cents per gallon this month alone. The slow economic recovery and more fuel efficient cars are among the key reasons. Moreover, it is known that prices would have dropped even more if refiners weren’t feeding export markets. But, even with exporting up, the downward trend in prices at the pump in the U.S. is expected to continue this summer.

Earlier this spring, crude oil prices were pushed up by concern that Israel might go after Iran’s nuclear facilities; not to mention the effects of a stagnant global economy. The former has cooled down while the latter, though not expected to end soon, is being taken in stride. Barring some sudden world trauma, declining prices will be the norm, at least for the near term.

But here’s the rest of this good story. Every 1 cent drop in the price of gas leaves an estimated $1.2 billion in available consumer spending for other things, according to Sean Brodrick (www.uncommonwisdomdaily.com/services/red-hot-global-resources), editor of Red-Hot Global Resources. So, if we see a drop of, say, 50 cents per gallon from the high, it will leave another $60 billion in consumer pockets. In fact, we’re already approaching that 50-cent drop in the Tampa Bay area. At Loggerhead Club & Marina, for example, the high of $4.85 per gallon earlier this month is now $4.40 per gallon and is expected to drop at least a few cents more shortly.

Viewed from another perspective, a further reduction in the price of crude oil, which has been slowly dropping, is a welcome boost to the economy. For example, a $10-per-barrel drop in crude prices could lift the U.S. economy by 0.3 percentage points, says Brodrick.

So, how low can it go? Well, while I’ve already demonstrated my predictions aren’t very good, but some energy analysts are predicting gas could bottom out at an average $3 per gallon.

Comments

One comment on “Gasoline: How low can it go?

  1. JOHN ENNIS

    WELL THOUGHT OUT PIECE. LIKE TO ADD A COUPLE OF THINGS. THE OIL AND GAS INDUSTRY GETS HUGE TAX BREAKS AND BOATERS AND OTHERS ARE REQUIRED TO MAKE THAT UP COME APRIL 15TH. ONE HAND GIVES .THE OTHER TAKES AWAY.. FALLING GAS PRICES SEES MORE TRAILER-SAILORS AT GAS PUMPS CONTAINING 10 PERCENT ETHENOL. BOAT REPAIAR SHOPS MIGHT WANT TO PLUG THAT INTO THEIR EMPLOYMENT FORCAST.

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