Fall­ing fuel prices ease squeeze on pock­et­books

The Washington Times Weekly - - National - BY PA­TRICE HILL

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.

AS­SO­CI­ATED PRESS

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.

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