Drop in gas prices benefits US drivers, economy

A sharp decline in the price of oil this month is making gasolene cheaper at a time of year when it typically gets more expensive. It's a relief to motorists and business owners and a positive development for the economy.

Over the past three weeks, the price of oil has fallen by 9 per cent to US$88 a barrel. That has helped extend a slide in gasolene prices that began in late February. Nationwide, average retail prices have fallen by 28 cents per gallon, or 7 per cent, since February 27, to US$3.51 per gallon. Analysts say pump prices could fall another 20 cents over the next two months.

The price of oil is being driven lower by rising global supplies and lower-than-expected demand in the world's two largest economies, the United States (US) and China. As oil and gasolene become more affordable, the economy benefits because goods become less expensive to transport and motorists have more money to spend on other things. Over the course of a year, a decline of 10 cents per gallon translates to US$13 billion in savings at the pump.

Diesel and jet fuel have also got cheaper in recent weeks, which is good news for truckers, airlines and other energy-intensive businesses.

"It makes a big difference to my bottom line," says Mike Mitternight, owner of a heating and air conditioning service company in Metairie, Louisiana. He has five pickup trucks that can burn US$1,000 of gas per week when prices are near US$4 a gallon. Lately he's been paying as little as US$3.19, and saving $200 a week.

IMPACT of RECESSION

Gasolene prices typically rise in the late winter and spring as refiners shut down parts of their plants to perform maintenance and begin making more costly blends of gasolene required by federal clean-air regulations. The trend was earlier and less dramatic this year. Pump prices only came within 15 cents of last year's peak.

Oil production is growing quickly in the U.S. and Canada, helping boost global supplies. And some of the factors that pushed prices higher the two previous years - political turmoil in North Africa and the Middle East and refinery disruptions in the US - haven't materialised this spring.

At the same time, demand for fuels is growing slower than expected. China, the world's biggest oil importer, is experiencing slower-than-expected economic growth. And much of Europe is in recession.

In the US, wintry weather in the Midwest and Northeast has kept more drivers off the roads this spring, analysts say.

The typical US household will spend an estimated $326 on gasolene this April, the equivalent of 7.8 per cent of median household income, according to Fred Rozell, an analyst at GasBuddy.com. That's $38 less than last April when households spent 8.8 per cent of their income on gas.

- AP