Will Gasoline Prices Continue To Fall?

Posted in: Economics, General, Stock Market, Thought of the Week

Gasoline prices fell to a 33-month low last week at $3.18 a gallon. In the past three years, we have seen gasoline hit lows in December and begin to head higher after that. However, our Investment Committee believes that this time may be different given some interesting changes in the supply and demand dynamics of domestic energy.

Our Investment Committee believes that the current price of gasoline is being driven by two key factors:

  1. Increased Oil Supply: New technology created by domestic oil companies has turned the U.S. into the largest energy producer in the world. Our ability to extract shale oil profitability has lowered the input costs for refiners that produce gasoline. Our research and development into new technologies has allowed us to tap into our vast resources.
  2. Diesel Demand Outside of the U.S.: Gasoline is produced in the same process as diesel, but gasoline is not used nearly as much abroad. As we continue to export diesel overseas to meet global demand, the gasoline inventory continues to build up in the U.S.

The result is that refiners are making so much money from exporting diesel to Latin America and Europe, they can continue to build gasoline inventories at a profit. Even if we were to see a spike in the demand for gasoline, which would take away from our existing inventories, estimates show that inventories are growing so fast that the prices would likely remain low.

Given that consumer confidence drives spending, gasoline prices are an important economic indicator because a continued decline in price could result in more disposable income for consumers. In other words, the more money we save on gasoline the more money we can spend towards holiday shopping. Let’s not forget that consumer spending drives 70% of our economy.

Read this week’s Thought of the Week to learn more energy in the U.S. and where it may head in the future.

Click Here for the Weekly Thought

As an Investment Advisory Representative working in conjunction with Global Financial Private Capital (GFPC) we are provided weekly thoughts on what is happening in the economy and the market. Written by our investment committee at GFPC we find these thoughts to be informative and interesting.