Falling Gas Prices Will Save Consumers $156 to $188 Billion Annually

According to the most recent data from the Federal Highway Administration, the total traffic volume over the most recent 12-month period (through July 2008) was 2.944 trillion miles. According to data from the EIA, the average fuel efficiency for all vehicles in 2006 (most recent year reported) was 17.2 miles per gallon. That means that the amount of gasoline required for the traffic volume over the most recent 12-month period was 171,216,860,465 gallons (2.944 trillion miles driven divided by 17.2 miles per gallon).

Therefore, every penny decrease in the price of a gallon of gas would equal more than $1.71 billion in consumer savings over a year (171.216 billions of gallons X $0.01). In that case, the $1.10 per gallon decrease in gas prices from $4.12 in July to $3.02 today (see chart above, data here), would represent annual consumer savings of $188 billion from the fall in gas prices just so far over the last three months (compared to a scenario where gas stayed at $4.12 per gallon).

An alternative calculation is to use the EIA estimate of 390 million gallons consumed per day in the U.S. times 365 days per year, or 142,350,000,000 gallons annually. For each penny decrease in the price of gasoline, consumers would save $1.4235 billion annually according to this approach, and will save $156.6 billion over the next year from the $1.10 per gallon decrease in gas prices since July.

If gas prices continue to fall over the next month (which seems likely), it could be like a $200-$300 billion tax cut for the economy.

Bottom Line: For every one penny decrease in gas prices, consumers save between $1.42 billion and $1.71 billion annually.

Comments

[User 143167:]

That doesn't really matter. Too late, the consumers are already belly up with their last credit card running out of credit.

2008 Oct 17 08:12 AM

[axelrod608:]

Which consumers will benefit ? The employed ones.

$4 gas and 5% unemployment or $3 gas and 10% unemployment - you choose.

Heck, at 15% unemployment gas would probably fall to $2. This is a good thing how ?

2008 Oct 17 10:24 AM

[Old Trader:]

And you're assuming prices will continue to fall.....what about OPEC? Don't think they're enjoying their "paycut", do you? Granted, "cheating" is an on-going problem (with the production quotas), but still....

2008 Oct 17 11:16 PM

[mangolfer:]

Personally I'd spend more on luxury items if my fuel and gas bill was not so outragous.

2008 Oct 18 07:37 AM

[willynill:]

Yes, good point. This 150 billion can be spent on goods produced by people who don't hate us as much. It is better than a stimulus program because it doesn't take taxpayers' money. It is like a tax cut in that it can increase government revenues from taxes (remember Laffer?).

2008 Oct 18 09:37 AM