Sliding Oil and Gas Prices Give Americans More Money to Spend
American consumers are going to enjoy a more bountiful Christmas this year, thanks in part to a most unlikely source: Saudi Arabia.
The steepening drop in gasoline prices in recent weeks — spurred by soaring domestic energy production and Saudi discounts for crude oil at a time of faltering global demand — is set to provide the United States economy with a multibillion-dollar boost through the holiday season and beyond.
The windfall, experts say, comes at a critical moment, with the American economy on the upswing but facing headwinds from other quarters, including weaker exports because of slow growth overseas. Gas prices recently dropped below $3 a gallon for the first time since 2010, while crude oil prices have fallen by more than $25 a barrel since midsummer, settling on Thursday just above $74.
“If oil prices stay between $75 and $95 a barrel, we would see the kind of stimulus package that the Federal Reserve or Congress could never do,” said Douglas R. Oberhelman, the chief executive of Caterpillar, the multinational maker of heavy construction equipment.
The impact is especially significant for low- and middle-income Americans, who have been largely left behind by the anemic economic recovery that began in the middle of 2009. Even as the job market has improved, most workers have received only modest wage increases. Median income remains roughly 5 percent below the peak it hit in 2007.
Of course, the shifting energy picture will create losers as well as winners. Falling crude prices could eventually slow surging domestic oil and gas production, dimming one of the major economic bright spots of recent years. But while a further decline in oil prices would make it harder to tap the most costly oil shale deposits and deep offshore reserves, economists say the overall momentum will more than compensate for any potential slowdown in the energy patch.
“When oil prices fall, the benefit to consumers outweighs the loss to producers,” said Dean Maki, chief United States economist at Barclays. “Investment in oil and gas production is still less than 1 percent of gross domestic product. Consumer spending is 68.5 percent of G.D.P.”
Even in Texas, the estimated loss of 15,000 energy production jobs that might occur if lower crude prices persist would be offset by increased employment in sectors like refining and transportation, as well as in businesses that rely on consumer spending, according to Mine K. Yucel, senior vice president and director of research at the Federal Reserve Bank of Dallas.
“There may be some slowing, but it’s not going to be dramatic if we stay around $80,” Ms. Yucel said. “If the price goes below $70, we will probably see a tapering off of production.”
In the meantime, the most economically fragile part of the population is already feeling some relief, which is likely to lead to extra spending on a variety of other goods and services.
Penny-pinching has been a way of life for Elaine Murszewski since she was laid off from her tech support job in 2009, but Ms. Murszewski, who is self-employed in the Denver suburb of Aurora, says lower gas prices are already making life a little easier.
“If my clients need me to go to their homes, I don’t have to worry about my gas tank being empty,” said Ms. Murszewski, who cobbles together about $900 a month helping two clients organize their offices and run online marketing campaigns.
With Americans spending roughly $1 billion a day on gasoline, Tom Kloza, global head of energy analysis at the Oil Price Information Service, estimates that consumers will save roughly $8.4 billion in November and December, compared with the last two months of 2013, based on an average price for regular gasoline of about $2.89 a gallon as opposed to $3.23 last November and $3.26 last December.
The typical American household buys 1,200 gallons annually, so if prices fall to the level Mr. Kloza predicts and stay there, that adds up to a yearly savings per household of at least $400. A 15 percent drop in the cost of home heating oil since last winter should also be helpful, especially as cold weather arrives in the Northeast.
The extra cash in shoppers’ wallets and pocketbooks could help generate nearly half a percentage point in added economic growth in the fourth quarter, and roughly $70 billion more in consumer spending over the next year, according to Barclays.
At Mall of America, a sprawling complex with 500 stores, mini golf and an aquarium in Bloomington, Minn., the drop in gas prices came as welcome news. Almost half of the 40 million visitors a year are out-of-state tourists, and most of them drive to the mall, which is just south of Minneapolis, said Dan Jasper, a mall spokesman.
“If they can save some money on gas, it makes it much easier for families who might be on a budget to hop in that car and come up for the day,” Mr. Jasper said.
Crude oil prices have been falling since they peaked early in the summer, as demand slowed from China and weak European economies. The decline sharpened earlier this month when Saudi Arabia, the world’s largest oil producer, cut the price of exports to the United States in a bid to retain market share.
At the pump, the drop in prices has been rapid, and most experts do not foresee a reversal of the trend anytime soon.
“We think lower gas prices in the U.S. are going to last for at least a year,” said Edward L. Morse, global head of commodities research at Citigroup. “Even if growth turns around globally, it would take two years of added demand around the world to move prices per barrel back to the mid-90s.”
On Wednesday, the federal Energy Information Administration cut its forecast for crude prices next year to $83 per barrel, $18 less than what the agency estimated last month, and predicted that the price of regular gasoline would stay below $3 gallon through all of 2015.
While consumers are the biggest beneficiaries, lower energy prices are also a boon to small-business owners like Barry Grossenburg.
The owner of Grossenburg Implement, a farm equipment business, Mr. Grossenburg sends his small fleet of trucks hundreds of miles from his main location in the small town of Winner, S.D., every day during the fall harvest season. Grossenburg Implement consumes roughly 250,000 gallons of diesel and gasoline a year, he said, so the savings at the pump could lift the company’s annual profit by $100,000.
Farmers who spend hours on the road this time of year hauling crops to market, he added, are also pleased with the drop in prices. “The fuel thing is going to help the whole economy,” Mr. Grossenburg said.
The automobile industry looks to be among corporate America’s biggest beneficiaries. Sales of trucks and sport utility vehicles jumped 9.1 percent last month from October 2013, according to the Autodata Corporation, as consumers flocked to more expensive, less fuel-efficient models that generate bigger profits for automakers. Passenger car sales registered a 2.8 percent increase.
But while some experts fear that efforts to conserve energy will falter if gasoline prices stay low, automakers say they will be more careful this time about ramping up production of S.U.V.s in response to cheaper gas, to avoid being left with bloated inventories when prices eventually rebound.
Lower crude prices are also unlikely to have a big effect on alternative energy in power markets, experts say, because oil does not generally compete as a source of electricity with renewables like wind and solar.
Meanwhile, businesses across the country are hoping oil prices stay down for a while.
“If this goes into the spring, that will be very helpful,” said Todd J. Teske, chief executive of Briggs & Stratton, a century-old Milwaukee manufacturer that is the world’s largest producer of gasoline engines for outdoor equipment like lawn mowers and snowblowers. “When the consumer has a few more dollars in their pocket, they’re apt to usually spend the money.”
