The Gas Price Stimulus

gas pumpIraq is one of the world’s largest oil producers, so when the ISIS militants rolled in from Syria and took over Iraq’s largest oil refinery, global oil traders and gas companies braced for a sharp spike in prices. Consumers expected to see higher prices at the pump in short order.

CA - 2014-7-8 - US Regular Gas pricesInstead, oil and gasoline prices are right where they were a year ago. As you can see from the chart, “regular” grade gasoline prices in different parts of the U.S. fell during the winter and have risen again in the summer months. If you happen to live on the West Coast and suspected that you paid more for gas than the rest of the country, well, this chart confirms it; the prices in California and the West Coast generally are more than 50 cents a gallon higher than the cost at the pump along the Gulf Coast, where the U.S. has the bulk of its refineries. People in the Northeast, Mid-Atlantic and Southern states generally fill up their tanks at cheaper prices.

CA - 2014-7-8 -  Gas Prices TimelineIf you want a longer-term view, look at the second chart, which shows the cost of “regular” grade gasoline since 1990. It shows prices hovering around a dollar a gallon for most of the 1990s. (The good old days!) Since then, the price has gradually crept upwards, with greater volatility and a deep price drop during the Great Recession. Since the beginning of this decade, prices have remained fairly level, and indeed today’s gasoline prices are almost exactly what they were in early 2008.

Prices have held steady despite the turmoil in the Middle East, in part because most of the Iraqi oil fields are located in the southern part of the country, a safe distance (so far) from the ISIS insurgency. The other main oil fields are located in Kurdish-controlled areas in the northern part of the country, and the Kurds have managed to protect their ethnic border with great effectiveness. Add to that a recent agreement in Libya between the central government and a regional militia that will add 150,000 barrels a day to that country’s crude oil exports.

The moderation in prices, from $4.00 at the pump two years ago to roughly $3.60 today, is acting as a kind of stealth stimulus for the U.S. economy. U.S. drivers are expected to use roughly 133 billion gallons of gasoline this year, so the price break adds $53 billion of savings to peoples’ balance sheets. This, added to the lower costs for factories, airlines and electric power plants, could add half a percentage point to U.S. economic growth in 2014.

Sources: http://www.rte.ie/news/business/2014/0707/629012-energy-index/

http://hosted.ap.org/dynamic/stories/O/OIL_PRICES?SITE=AP

http://www.usatoday.com/story/money/markets/2014/07/06/oil-iraq/12004745/

http://money.cnn.com/2012/06/15/news/economy/gas-prices-stimulus/index.htm

 

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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One Response to The Gas Price Stimulus

  1. Pingback: RelyLocal Wausau Newsletter for July 31, 2014 | Buy Local Wausau

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