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August 16th, 2011

Oil down: Where’s our gasoline stimulus?



gas pricesSince the economy as a whole is a complex thing, we pay attention to lots of market influences here at HSH.com in order to keep in tune.

Crude prices up, gas prices up

Like most Americans, we can’t help but watch the price of gasoline as it barely moves from day to day and week to week. This is especially grating as we hear of oil prices falling, first below $100 per barrel (bbl), and now below $85/bbl.

During the first week of August, and before the latest market rout, crude oil prices had moved from $115/bbl in early May (2011 peaks) to about $91/bbl in early August (about a 21 percent decrease).

Over that same period, the average cost of a gallon of gasoline declined from about $3.91 per gallon to $3.69 per gallon–only a 6 percent decline!

Gas prices have remained firm despite a move by the Obama administration to release some of the holdings of the nation’s Strategic Petroleum Reserve, adding even more oil to the marketplace.

What gives?

Why aren’t gas prices falling as much?

We are asked to understand and even accept that when oil prices rise, gasoline prices almost instantly rise along with them. Even acknowledging that there is a lag in price declines from crude oil to refined retail gasoline, why are we not seeing more significant relief at the pump by now?

The last time oil was around $91/bbl–in December 2010–the average cost of a gallon of gas was $2.93–some 75 cents lower than today!

At one point this year, Economy.com reckoned that the early-year spike in oil and gas prices had fully absorbed (and then some) the payroll-tax cut implemented early this year as a stimulus measure. No wonder growth remains lackluster, with only 0.4 percent and 1.3 percent GDP growth so far in 2011.

Lower gas prices could really boost the economy

A decline in gasoline prices would be a huge boost to the economy, adding billions of dollars to consumer wallets and driving consumer spending forward. Can anything be done to re-align the prices of oil and gasoline, whether via political pressure or angry consumers with torches and pitchforks?

Oil has recently descended from the low $90s into the mid-$80/bbl range.

When will our “gasoline stimulus” finally come?

2 Responses to “Oil down: Where’s our gasoline stimulus?”

  1. Martina Webster Says: August 17th, 2011 at 2:57 pm

    You are right! I thought gas prices had dropped a lot but when you compare it to the drop in oil prices, gas prices should be lower.

  2. Tim Manni Says: August 18th, 2011 at 10:19 am

    Hey Martina, We’re all just wondering when this will kick in! We need all the help we can get these days. Thanks for your recent comments and thanks for following blog.HSH.com. -Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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