Home » Oil Prices Are Falling: Good News for Drivers, But Bad News for the Economy?

Oil Prices Are Falling: Good News for Drivers, But Bad News for the Economy?

by Richard A Reagan

If you’ve been to the gas pumps recently you’ve probably noticed that prices of gasoline have been decreasing steadily. That’s a little unusual, since gas prices generally start rising after Memorial Day due to the increased demand from summer vacationers and stay elevated through Labor Day. Average gasoline prices have dropped about 16 cents per gallon over the past month, but why?

Oil prices were supposed to stay high, buoyed by sanctions against Iranian oil shipments and continued lack of supply from Venezuela. But despite those supply decreases, demand for oil just isn’t what it used to be. The world economy is in the first stages of a slowdown, which is leading to decreased worldwide demand for oil. That has resulted in oil falling from over $80 a barrel late last year to $60 or less per barrel this year. And the short-term outlook is for oil to fall even lower.

Lower oil and gasoline prices are great news for US consumers, at least those who are able to afford to fill up their cars. But while car owners may benefit from lower gasoline prices, the fact that they’re falling right now is not a good sign for the economy. Aside from decreased world demand for oil, falling gas prices could also be a reflection of falling demand within the United States.

If fewer households are taking summer vacations and are pulling back on trips with their cars, it could be an indication that households aren’t in great financial shape either. They’re cutting back on spending because they can’t afford to spend money on gas, which could be an indicator that the economy is starting to slow down around the margins.

If you’re able to enjoy low gas prices and take advantage of them, go ahead. Given the cyclical nature of oil markets there will undoubtedly be a resurgence at some point in the future. But for now things are looking bleak for oil markets.

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