Falling fuel prices ease squeeze on pocketbooks
Recession-struck consumers have at least one thing going for them — a substantial drop in energy prices that is projected to continue through winter.
Regular-gasoline prices are falling quickly from peaks near $2.70 a gallon this summer, and some analysts say they are headed below $2 a gallon. Heating costs are expected to drop as much as 12 percent this winter.
That is good news to Linda Melton, who was filling up her car Oct. 6 during a visit to the Washington, D.C. area from Eagle River, Alaska. “More money to spend,” she said.
And that is exactly the point, economists say. They note that the reduction in energy prices acts like a tax cut, leaving consumers with more disposable income and offsetting some of the pressures from the loss of jobs and income. Moreover, the drop comes just when the economy is entering a fragile recovery that needs a boost in consumer spending.
Whether gas prices will provide that stimulus depends on the attitudes of drivers like Washington resident Raynard Bradshaw, who said he still finds prices bouncing up and down and tries to fill his tank when prices are down. “To have gas drop, that’s a big plus,” he said.
Mike Rock of Scranton, Pa., is hoping for prices to come down further. Current prices of less than $2.50 a gallon for regular are nice, he said, “but $2 would be nicer.”
Some analysts say his wish could come true.
John B. Townsend, a manager at AAA Mid-Atlantic, said gas prices have dropped below $2 a gallon in some parts of the South where gas taxes are low and that the trend could spread to other parts of the country this winter.
He attributes the drop in prices to the usual seasonal decline in driving and demand for gasoline after Labor Day, combined with a weak economy and hefty supplies of fuels.
“Lower demand for gas, combined with other market factors. will likely mean lower gas prices in the days ahead,” he said.
Other analysts are not so optimistic. They say growing international demand for oil as people in developing nations such as China and India purchase more cars will keep pressure on fuel prices.
Meanwhile, the Energy Information Administration on Oct. 6 predicted that households on average will spend 8 percent less than last year on their heating bills this winter, mostly because of record supplies of natural gas, which is the most common heating fuel in the United States.
For the majority of Americans who heat their homes with natural gas, heating costs will drop 12 percent from last year. People who use propane will see a 14 percent decrease in fuel costs, while those using heating oil and electricity will see declines of only 2 percent, the agency said.
Households will see average savings of $84 on a winter energy bill of $960, the agency estimated.
“From a household perspective, having lower heating bills this winter would help their budgets,” said agency head Richard Newell. The agency expects a milder winter than last year to contribute to fuel savings as well.
Natural gas supplies are at record levels because of technological breakthroughs that have dramatically increased the amount of gas that can be derived from shale and other unconventional sources, according to the American Gas Association.
“With natural gas storage at all- time highs and prices well below past years’, homeowners across the nation are in for some well-deserved relief from high energy costs when heating their homes this winter,” said David Parker, the association’s president.
The windfall of savings from lower energy prices couldn’t come at a better time for battered U.S. consumers. Millions of people have lost jobs and homes in the past year as a result of the credit crisis, and unemployment appears headed over 10 percent.
Consumer spending has been crimped in a way not seen in generations, not only because of lost jobs and incomes but because banks are cutting back on credit and falling home values are pre- venting many consumers from dipping into their home equity to finance purchases as they did in the past.
Brian Bethune, an economist with IHS Global Insight, said the recent fall in gasoline prices after spiking in August helped boost consumer sentiment to the highest level in nearly two years last month. It also lowered inflation expectations and put consumers in more of a buying mood, he said.
Rowquena Ward, a mother of three in the District, said she will use the money she saves on gas to pay for her children’s education, food and clothing expenses, or put it into a savings account.
The money left over from lower gas prices also is helping her family to visit more museums, restaurants and amusement parks, she said.
But economists caution that the boost to disposable income is not likely to be powerful enough to overcome other big drags on consumers. Prospects for consumer spending remain so dismal that retailers are expecting another drop in sales during the critical Christmas season.
“Don’t bet on the consumer” to rescue the economy, said David Watts, an analyst at CreditSights. Consumers still have a long way to go to rebuild their savings and wind down their huge loads of debt after going on a spending and debt binge in the early part of the decade, he said.
Tim Devaney contributed to this report.
A natural gas system installed in a home in Ossining, N.Y., could save about $105 this winter because of an expected drop in natural gas prices.