The recent drop in crude oil prices and corresponding plunge in prices at the pump have been major stories this holiday season. At a time of year when many Americans are opening their wallets, they have been pleasantly surprised to find a little extra cash that was saved the last time they filled their tanks. Inflation adjusted crude oil prices are down more than 40 percent from December 2013 (falling from $100/barrel to $57/barrel), which translates into the lowest gasoline prices in more than five years. According to AAA, the average price for one gallon of gasoline in Utah today is almost $2.50; nearly one-dollar cheaper than it was in July of this year. This decline represents a savings of about $25 per week for my two-car household.
|AAA Fuel Gauge Report|
While saving money at the pump is the most obvious benefit of cheaper gasoline, lower oil prices impact the economy in several ways. For example, petroleum-based products (plastic and rubber) are manufactured using crude oil, and those products are shipped to customers using planes, boats and trucks that run on gasoline and diesel fuel. Profits increase for businesses that use oil in the production or delivery process when the cost of that input decreases. As profit margins grow, these companies are more likely to invest in new capital and hire more workers.