“Can I have $40 regular? Cash.”
This used to get the gas tank on our SUV nearly full. But the other day something miraculous happened. The pump clicked to a stop after $29.50.
“That fills it,” the gas station attendant said, seemingly as astonished as I was. “Here’s your change, sir.”
Wow. I couldn’t have been more astonished if a chorus line of Rockettes had danced out to clean my windshield and check my tire pressure. Gas was cheap! Well, cheaper than it has been. Back in February 2009, at the tail end of the 2008-2009 recession, I wrote about Exxon’s record-setting profits ($46.6 billion in 2008 and $40.6 billion in 2007) that were due, in part, to gas selling for $4 a gallon the previous summer.
Why So Cheap?
So what happened? Why is gas selling for half of what it was? Did we unexpectedly find double the amount of crude oil underground? Have gas engines gotten doubly efficient? Are more dinosaurs dying off, increasing the overall reserve of fossil fuel?
No, no, no. Economists say it’s simple supply and demand; oil companies pumped more fuel than people needed, so gas prices dropped. But there are other reasons gas prices are so low, like:
- Fracking Up—Environmentally un-friendly technologies like hydraulic fracturing (Fracking) and horizontal drilling have helped America increase its oil output by 50 percent over the last several years. Why import expensive Saudi Arabian oil when we’ve got plenty of crude right here under the slate bedrock in Texas and North Dakota? New drilling technologies are even extracting crude from oil-rich sands in Alberta, Canada. Oil extracted from shale or tight sandstone is called “tight oil,” and business is booming.
- OPEC is a Mess—The Organization of Petroleum Exporting Countries, whose oil embargo caused America’s “energy crisis” back in 1970s, can’t figure out how to stabilize current gas prices. Iran, Venezuela, and Algeria pushed to cut oil production to firm up prices, but Saudi Arabia, the United Arab Emirates and other Gulf nations refused. Iran has actually increased its crude oil output. The leaders of OPEC met in November, but failed to come to an agreement, leading oil prices to tumble further.
- Cold War Over, But Still Chilly—Soviet Communism may not be the threat is was 50 years ago, but Russian leader Vladimir Putin is still an unsettling world leader. By supporting rebels in former Soviet states like Moldova, Belarus and Ukraine, Putin seems on a relentless quest to return the Motherland to its “Glory Days” as a Soviet Union. But cheap petroleum is crippling the Russian economy, and may foil Putin’s expansionist plans. Economists estimate Russia’s Gross Domestic Product will shrink by at least 4.5 percent in 2015 if oil stays at $60 a barrel. Bad news for Russia, but good for those branches of American government responsible for keeping Putin in check.
Gas prices in the US are expected to creep lower throughout 2015. Economists estimate US drivers will spend about $550 less on gasoline in 2015 than they did in 2014, and $750 less on home heating fuel. Great news!
But where are the rest of the savings?
Trucking is the backbone of American commerce. If fuel costs are half of what they used to be, then the cost of shipping and delivery is less, too. The price of groceries and goods everywhere should be coming down, right? When gas was expensive in 2008, NJ Transit raised bus and train fares. So where are the discount bus and train tickets now that gas is cheap? Why aren’t airline fares coming down? Consumers and commuters need a price rollback here!
Don’t hold your breath waiting.
Originally published in Wayne TODAY, January 2015