Plunge in oil prices is a boon for consumers

Associated Press

A renewed plunge in oil prices is a worrying sign of weakness in the global economy that could shake governments dependent on oil revenues. Yet it is also a bonus for consumers as prices fall at the pump, giving individuals more spending money and lowering costs for many businesses.

The latest slide follows OPEC’s decision to leave its production target at 30 million barrels a day. Member nations of the cartel are worried they’ll lose market share if they lower production.

Partly because of the shale oil boom in the U.S., the world is awash in oil at a time when demand from major economies is weak — so prices are falling. Citibank analysts wrote in a report Thursday that global supplies exceed demand by about 700,000 barrels a day now.

Brent crude, an international benchmark, was at $72.50 a barrel Friday, down nearly 30 percent in the past three months and at its lowest in four years. U.S. crude oil slid 7.9 percent to $67.94 a barrel Friday and is down 37 percent since hitting $107 in June.

Tom Kloza, chief oil analyst at the Oil Price Information Service, expects the price to fall by an additional $5 or $10 a barrel before stopping. “It’s that kind of rout,” he said.

Overall, the slide is a boon for consumers in oil-importing regions such as Asia, Europe and North America.

The U.S. economy will receive an outsized benefit from lower oil prices because the U.S. is the world’s largest oil consumer.

U.S. consumers have been surprised and delighted at the lowest gasoline prices since 2010. Drivers in some low-cost states such as South Carolina, Missouri, Oklahoma and Texas could see prices below $2, according to Kloza.

The U.S. national average was $2.79 on Friday. Kloza expects gas to eventually be a full $1 per gallon below its June peak of about $3.70 per gallon. That would save typical households $60 a month for those that burn 60 gallons of fuel.

“It’s a nice, easy calculation,” Kloza says. “These are numbers that we would have regarded three or four months ago as something from the lunatic fringe.”

The bottom should come between $2.50 and $2.70 per gallon, Kloza says.

Canadian consumers also are catching a break. In some regions, such as southern Ontario, gasoline could fall below the important psychological barrier of $1 per liter.