2015 is looking good already. Why? Gas prices are low! It’s all you hear about, it’s probably all your dad talks about and local news stations seem to love doing stories on it.
So everything is awesome and low gas prices are great, right? Why are they low? Who cares! What, you’re saying foreign oil producers are aggressively trying to price American oil out of their industry? Sorry, I can’t hear you over all of this cheap gas I’m pumping into my car.
All kidding aside, and without even getting into the why of cheap gas, the steady decline of crude oil prices over the past few months should be very unnerving for those of us with an eye on foreign economies as well as energy investments domestically.
But the average consumer doesn’t care about that, right? Maybe they should, but there’s no need to rain on this cheap gas parade — people love it when gas costs less and less. Gas is the cheapest it has been since before the recession in 2009!
CNN Money contributor Chris Isidore, in a recent report, found that you can get gas for under $2 per gallon at over 40 percent of gas stations in the US. Not only that, but many analysts see the lowering of gas prices to be the economic push we need to see unprecedented growth in the country. This could be just the thing we need to get us firmly past our country’s economic decline that started back with the housing crash of 2007.
What concerns me is how the American consumer reacts to gas prices in the short-run as well as what the global impact is on countries who rely on crude oil exports.
Michal Sivak, director of ‘Sustainable Transportation Research’ at the University of Michigan, has been closely following the car markets since August.
“Consumers react very quickly to changes in gas prices, especially if those changes are relatively rapid,” Sivak said in a recent interview with Bloomberg.
In terms of gas prices, the changes have been quite rapid.
So rapid that demand for SUVs and light trucks is already increasing across the country. The average MPG (mile per gallon, a common way to quantify fuel efficiency) rating on all vehicles driving has actually increased since August. This basically means there is more demand for low MPG cars than previously seen.
That demand might continue well into 2015. According to a Bankrate analysis of government petroleum statistics, each American driver can expect to save about $452 on gasoline in 2015. This is huge for an ailing economy. This increase is basically like the Bush stimulus packages back in 2008. What’s different here is that the government isn’t going into debt for it to happen!
So who is paying the bill, then? You guessed it, the Middle East’s oil-producing nations, Russia and other energy exporters. While it’s a win-win for American consumers and the government, the same can’t be said for international markets. Because it relies so heavily on the price of crude oil, Russia is facing a weakening Ruble and economic unrest because of the dropping price.
Most people are only interested in the gas prices because it directly affects them on a weekly basis. The intricacies of Russia’s economy and its energy export industries? Not so much. So who’s to blame them when the demand for SUVs and light trucks goes up when gas is low?
But as I stated earlier, the savings will be around $500. Is that really enough to make people want to buy bigger cars? It all comes down to perception. Consumers perceive that they are saving more money than they actually are. Further, they assume gas prices will continue to decrease. This double whammy of blissful ignorance could be harmful to the strides being made in alternative fuel and the popularity of electric hybrid vehicles.
This short-sighted outlook of the average consumer can often hurt progress in the energy industry when it needs it most like in the decades to come. Just when the Nissan Leaf is finally making sense to the consumer, people are starting to demand bigger, less fuel efficient vehicles while gas is cheaper. Consumers think it’s too drastic a leap from gas to electric now- especially while the gravy train of cheap gas is rolling. In reality though we will all be better off in the long-run using electricity to fuel our cars.
Think of it like this: Every electric car bought makes a difference in helping lessen our dependence on foreign oil. Every mid-sized SUV or truck is contributing to our dependence on foreign oil.
So which camp are you in? Are you excited for cheap gas and planning on driving more, driving bigger or just saving a little cash? Or are you more focused on the long term energy situation and ready to invest in an electric car? Neither option is exactly wrong, nor is it 100 percent right. Eventually markets will settle and gas will be back on the rise.
My money is on alternate energy like electric cars and geothermal energy sources. Since oil reserves will be depleted in our lifetime anyways, there’s no use in getting too attached to the good old ‘black gold’ much longer.
So there you have it. Whether gas is $2 per gallon or $20 per gallon, it will both be arbitrary in 20 years when crude oil will be considered as outdated as whale oil to fuel our world. Until then, we can at least help the economy by spending a little of the money we’re saving on gas to help boost the country back to economic prosperity.
