Industry experts expect low oil prices to remain that way through 2016.
No longer is it distressing when the gas gauge on your personal vehicle nears zero. The price of gasoline has dropped to the point that American consumers don’t mind filling up anymore.
While the drop in energy prices this year has dismayed energy producers, and some like to claim low oil prices specifically will doom the stock market eventually, the fact of the matter is the consumer appreciates the drop in price for all energy needs, and the American economy actually benefits when energy prices drop.
Not only did the glut in oil force the price of gasoline down in the classic supply-and-demand scenario, the upheaval in China’s economy created another pressure that pushes down energy prices and produced a very pleasant summer for American consumers.
If the price of energy remains low through the rest of the year as anticipated, this could be the best holiday shopping season in many years, experts declare.
According to the Energy Information Administration, the statistical information bureau for the U.S. Department of Energy, American households will pay $700 less on average for energy in 2015 than they did in 2014. Some experts believe that energy savings will continue through all of 2015.
“Gasoline prices are expected to stay below $3 for all of 2016,’’ said EIA petroleum market analyst Timothy Hess to Newsweek.
It is not known that all of the money saved on energy expenditures is going to buy other products, but at least some of it is. The Federal Reserve expects the annual rate of consumer spending to grow beyond 3 percent for all of 2015, noting that it grew at 3.7 percent in the second quarter of 2015. That’s the same percentage that disposable income in America rose for the second quarter, according to the Bureau of Economic Analysis.
While there has not been a responding improvement in wages for most consumers as companies also spend less on energy, the savings on energy expenditures will still have an effect on consumer spending.
Financial market experts have been expecting a rise in the federal prime interest rate for months now, but China’s decision to cut its own interest rates and devalue its currency caused the Federal Reserve to take pause and reconsider. That much-anticipated September interest rate increase did not happen, and language from the Fed is not overwhelmingly positive that it will occur the next time the agency considers a change.
The low oil prices is expanding oil demand. According to the International Energy Agency, demand for global oil is expected to grow by 1.7 million barrels a day through the end of 2015. The IEA predicts demand will rise 1.4 million barrels a day in 2016.
Oil production in the United States continues to climb and exceed demand, thanks to production by companies getting oil out of shale. Allowing Iran to reenter the global oil market has only increased the glut, which again lowers the price, which again increases consumer disposable income, which makes travel less expensive, which increases consumer spending.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.