Demand For Gas Plummets, Oil Prices Sink: Is This Good News?

June 22, 2012
Old Gas Pumps

Old Gas Pumps

Today, the average price for a gallon of regular unleaded gasoline is $3.45 -- 18 cents below last year, and 23 cents lower than May. That's good news for commuters, road-trippers, and other folks who depend on gas to get from here to there.

But wait, there's more: according to the Detroit Free Press, demand for gasoline has plummeted 4.8% in the past few days, hitting levels not seen since October. And according to our notes from Econ 101, reduced demand means reduced prices. (Note: this comes at a time when consumption in the U.S. is already declining, which has made America a net exporter of gas and diesel.) 

And as if that weren't enough, the price of crude oil has dipped below $80 a barrel, which is also something we haven't seen since October. Oil now sits 30% below its March highs, and analysts across the board are at odds over when prices will rebound, with most blaming the sluggish European economy for the drop-off. That should help keep gas prices on the retreat -- at least for a while.

Good news for travelers?

Obviously, lower gas prices are great news for drivers, including summer vacationers traveling by car. However, those going by plane may not be so lucky: while the cost of jet fuel is related to the cost of gasoline, the two don't always move in lockstep. (For example, jet fuel prices are ever so slightly higher now than they were last week.) 

More importantly, though, airlines aren't always quick to reduce fares, even when their cost of doing business drops. Which, of course, is how they make moolah.

And there's even some bad news for road-trippers, because instability in the oil market often translates into instability in the broader financial markets. That kind of economic uncertainty takes its toll on your savings -- meaning that you might be able to afford that drive out to Yellowstone this year, but next year? Maybe not so much.

Our advice? Take advantage of the good situation and wring as much enjoyment as possible from this summer's vacation. And send pics!

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