The stock market plummeted last week as uncertainty and fear about the economy in the US and Europe spread like wildfire. May investors worried another recession could be right around the corner.
Yes, the stock market plunge was disconcerting and downright scary, but there is some good news. Many analysts are expecting gas prices to drop over the next few months. That’s because the same fears that forced a sell-off on Wall Street also brought down the price of oil.
Historically prices are highest in July and August because Americans drive the most during these two months, according to the Federal Highway Administration. Also, oil companies switch to a more expensive summer blend of gas, adding pressure to already high prices.
Then gas prices usually fall in late summer as families take fewer road trips. But the recent drop in oil should reduce gas prices even further. Experts are predicting the national average of $3.70 per gallon could fall as much as 35 cents per gallon over the next month. US drivers consume about 378 million gallons of gas every day, so a 35-cent-per-gallon fall would reduce daily total US gas spending by about $132.3 million.
“They’ll see a penny or two drop per day next week,” said Patrick DeHaan, senior petroleum analyst at GasBuddy.com, a consumer Web site that tracks retail gas prices around the country. DeHaan said the decline will likely start at stations along highways and other busy areas. Those stations need to replenish their storage tanks every day or so, and they’ll get the cheaper gasoline faster than others.
Of course, an unexpected surge in oil could drive prices higher again. But traders say it would take a calamity like a hurricane in the crude-producing waters of the Gulf of Mexico to really boost oil markets now.
Benchmark West Texas Intermediate crude has declined $12.71, about 13 percent, in the last 10 days. On Thursday, while the Dow Jones industrial average fell more than 4 percent, to its worse decline since the 2008 financial crisis, oil dropped even more. It lost nearly 6 percent, to a six month low.
A decline in the U.S. unemployment rate to 9.1 percent was one bright spot on Friday. Brent crude, which is used to price many international varieties, also climbed $2.12 to settle at $109.37 per barrel on the ICE Futures Exchange in London. That wasn’t because of an expectation for increased oil demand, however. An oil pipeline exploded in Iran, potentially impacting oil supplies for the world’s third-largest oil exporter. The cause of the blast is still under investigation.
Some big gas companies such as Exxon (NYSE: XOM) and Chevron were negatively effected by the stock market plunge. As the demand for oil has been shrinking in America, investors may not see Exxon as a viable long term choice since the company is already dealing with margin issues. Also, if the price of oil continues to fall under the 92 level, we should be seeing a continued selloff in Exxon’s stock.
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