Gil’s Musings

Lower Gasoline Prices Are Like Tax Cut

There’s been a lot of hand-wringing in the press lately about falling oil prices. The energy industry has been booming in the past few years, making it one of the few bright spots in our economy. And yes, the 40% decline in the price of West Texas Intermediate crude since June has been bad for energy companies, but stories about the struggles of the oil industry are missing the bigger picture.

The decline in crude prices has been mirrored by lower prices at the gas pump. The current national average for a gallon of regular unleaded is $2.71, according to the American Automobile Association. A year ago, the average was $3.25. Pump prices have fallen by about 15 percent just in the past month.

In some parts of the country, the averages are even lower. It’s not unreasonable to believe that some motorists will be paying less than $2 a gallon in the next few months. We haven’t seen prices that low since early 2009.

Economists estimate that for every one cent decline in gasoline prices, Americans save $1 billion annually on energy costs. That provides an economic boost for manufacturers, transportation companies and, of course, average American households.

Even here in Houston, the energy capital of the world, lower gasoline prices are a greater benefit to the economy than they are a drawback. Sure, weak prices may hurt some of our biggest employers, but it still benefits all those company employees who have to commute to work. By spending less money on gas, they’ll have more to spend on something else.

By reducing this de facto tax, we have actually created an economic stimulus. The more oil prices drop, the more it’s likely to boost the overall economy. Since stock prices are tied to economic vibrancy, one could assume this should help stock prices as long as this lower oil price trend persists. Other variables aside, this could help spur U.S. investments to another banner year in 2015.

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