Falling Gas Prices Are a Tax Cut of Massive Proportions

Update: A recent CD post reported that American consumers save $1.42 billion annually for every one penny decrease in retail gasoline prices. According to EIA data, the average retail gasoline price peaked in early July at $4.165 (national average) per gallon, and is now at $2.914, a decrease of 125.1 cents (see chart above). That fall in gas prices translates into a $177.6 billion savings for U.S. consumers over a one-year period, and there'll probably be more to come as gas prices continue to fall.

And in Texas, where gas prices are down to $2.02 in some areas, the $2 per gallon fall in gas prices there (from $4 in July) would translate into almost $300 billion worth of annual consumer savings (actually $284 billion).

As Dennis Gartman wrote in "The Gartman Letter" last Friday:

This [$177 billion savings] dwarfs by a huge factor the recent tax rebate checks that went out to the nations taxpayers and which helped bump up the economy in the summer. That was a one-off event; the weakness in gasoline prices is an on-going one instead. This is a tax cut of massive proportions... beyond anything that Obama might promise.

Comments

[GoldWize:]

Gotta love peak oil. Seriously, the US didn't hit peak oil. We just
decided that we didn't want to drill here anymore. There is enough
oil under US lands to supply the US for the next 100 years or more.
The only difference is that we need to build the technology to get to
it safely and convince the voting public that it really is safe on the
environment.

2008 Oct 21 12:59 PM

[Jolly_Rancher:]

1) When the consumer is given a one-time check, he tends to blow it on miscellania from cheap-goods-producing countries. But savings from falling gas prices will creep into bank accounts over time and probably result in savings.

2) The U.S. government, being the largest energy consumer, will feel an immediate positive effect. The deficit will not rise as much as expected.

2008 Oct 21 01:49 PM

[jadziasman:]

The current oil price decline is a combination of the annual autumn to winter price decline and the recent upheaval in world financial markets.
Demand growth from Asia next year will bring back $4/gal for sure. Enjoy your "cheap" gas while you can.

2008 Oct 21 04:15 PM

[mangolfer:]

I believe that gas is going to fall quite a bit before any attempt at rising. I hear predictions of 4th quarter 2010 before we get back on track. The demand destruction has started and should continue for some time regardless of the so called spike in Asia. Asia still depends on the rest of the world as it's customer. My little company is saving over $1000 per month in gas currently and will never go back to gas guzzlers regardless of price....

2008 Oct 21 06:52 PM

[Paul Killinger:]

G-W,

You're right about our domestic energy prospects. We have enough oil, natural gas, coal and gas hydrates to run our economy FOREVER.

As regards the safety of oil exploration, almost ALL the oil that enters U.S. waters is from NATURAL seepage. And the Gulf of Mexico off the Louisiana coast is one of the 10 BEST fishing spots in the WORLD, right under the production platforms!

Unfortunately, the politicians in Washington don't see it that way. They'd rather have us pay high prices at the pump instead. And they will REINSTITUTE the OCS moratorium on oil and gas exploration soon after the upcoming election. Unbelievable, isn't it?

2008 Oct 22 09:42 AM

[Paul Killinger:]

Mark,

Terrific stats, as usual. Thank you!

And you can bet your bottom dollar these FACTS will not enter into the deliberations to REINSTITUTE the OCS exploration MORATORIUM in Congress next spring. Wouldn't want to let this get in the way of their good story, especially when there's so much more PORK to distribute to their contributors instead.

2008 Oct 22 09:49 AM

[Octogenarian:]

$170b? The stock market had given up about $4,000b YTD. How's that for comparison in terms of wealth contribution to Americans?

2008 Oct 22 11:04 AM

[CLH:]

Yes you are right. Gas prices down is a huge stimulus in our economy. However, we also need a cut in taxes. Giving money to the gov. is flushing money down the toilet.

2008 Oct 22 10:52 PM