Tags: Gasoline | Prices | Economy | gas

Falling Gasoline Prices Indicate Ailing Economy

Wednesday, 10 Aug 2011 12:15 AM

By Michelle Smith

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Oil prices have tumbled to their lowest levels in more than eight months, and the result is that the pain at the pump is becoming a bit less painful. But, there are concerns that the current savings may not be all good news, the Los Angeles Times reported.

Lower gas prices mean more money in consumers' pockets, which most people would initially consider to be a positive thing.

Fred Rozell, Director of retail pricing at the Oil Price Information Service explains it this way: “The average household consumes 1,200 gallons of gasoline a year, which translates into a $120 annual savings for every dime shaved off the price of gas” reports CNBC.

The paper also reports that according to economists, drivers could see a national average of as little as $3.25 per gallon next month, a drop of more than 40 cents from current levels.

In addition to the household savings, certain businesses should be experiencing significant relief. “The drop in oil prices over the last couple of weeks alone could translate into yearly savings of $13.5 billion for commercial truck fleets, $5 billion in savings for small trucks and local delivery fleets, $5 billion for domestic airlines and $1.4 billion for railroads,” according to Michael C. Lynch, president of Strategic Energy and Economic Research.

But, if economists are correct, falling energy prices are an indication of trouble ahead, if not already in the midst.

CNBC notes that these recent declines are the most rapid in nearly three years. When the U.S. last witnessed oil and gasoline prices dropping at this pace, it was in response to the financial crisis.

The declines we are witnessing now are also the byproduct of  “a pretty sick economy,” according to Allen L. Sinai, chief global economist for Decision Economics, a consulting firm. “Lower oil prices are an automatic response to the prospect of worse times,” Sinai told CNBC.

According to Sinai, “crude oil futures are economically sensitive, so the picture for us and the world economy is bleak.”

Sinai is not a lone forecaster of approaching troubles.

“It's clear we're entering, or are on the precipice of, another global financial crisis," Richard Soultanian, an analyst with NUS Consulting, told the AP. USA Today says Soultanian expects crude to fall to between $55 and $60 before rebounding to the mid-$70s in the fourth quarter.

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