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The average price of a gallon of gas in the US this week is $3.19, and it’s been been falling since Labor Day, when it hit $3.60. The falling price caused one research firm to up its third-quarter GDP forecast by 0.3 percentage points to 2.7%.
While part of the fall in gas prices is likely a typical seasonal fluctuation coupled with the falling price of oil (WTI crude is now about $93 a barrel, compared to about $110 over the summer), Brad Plumer writes that there are other factors at work. For one, no hurricanes have hit the Gulf Coast, which means the refineries in the area have been more productive than usual this year. Today, Jason Furman, the head of the White House Council of Economic Advisors, tweeted that “monthly domestic crude oil production exceeded crude oil imports for the first time since Feb 95”.
Perhaps an even bigger factor is the increase in the production of natural gas in the US, which has led to American refiners producing a lot of diesel that gets exported. “The U.S. became a net exporter of petroleum products just two years ago and is now the largest exporter in the world”, according to CNBC. Domestic gas is just a byproduct. “Gasoline is produced in the same process but it isn’t as widely used abroad, leaving the U.S. market awash in the fuel”, writes the WSJ.
The ethanol market is also affecting the price of gas. Here’s Plumer:
Earlier this year, many refineries were buying up renewable credits, known as “RINs,” in anticipation that the Environmental Protection Agency would tighten its rule on how much ethanol needs to be mixed in with gasoline in 2014. The price of RINs soared, which, in turn, may have driven up gasoline prices.
The opposite is happening now as many observers think the EPA could weaken its ethanol targets for 2014 (a leaked draft suggested as much). Partly as a result, the price of RINs has fallen sharply since July — and with it, some analysts think, the price of gasoline.
Barry Ritholtz doesn’t see the falling price of gas as a good thing. “While some analysts are applauding what this means for consumer spending, I am much more concerned with the demand side of the equation. The economy remains filled with soft spots and pockets of weakness”, he writes.
That’s not, however, how many others see it. Deutsche Bank’s chief US economist tweeted “A one cent change in #gasoline prices impacts annual household #consumption by roughly $1 billion”. Tom Kloza, the chief oil analyst at the Oil Price Information Service, told Bloomberg Businessweek that the price of a gallon of gas being $0.11 cheaper than a year ago “translates into about $40 million a day in direct consumer expense.” Says Bill McBride, “Whatever the reasons, this is definitely a plus for drivers!” — Shane Ferro
On to today’s links:
Why one investor thinks SnapChat is worth billions: press and hold – Mike Isaac
SnapChat also possibly turned down Google – Nitasha Tiku
“Young people, the things they like on the Internet, increasingly I don’t understand it. This is my biggest worry” – Jenna Wortham