Good News for Energy Buyers

Good News for Energy Buyers

Purdue economist says gasoline prices could continue to fall, as will diesel prices.

Sliding oil prices have been a shot, or shock, to the market depending on your perspective. Yet falling gas prices over the past couple of months could continue at least through spring, according to Wally Tyner, energy economist, Purdue University. He points to the national average price of regular unleaded gasoline at $2.61 per gallon on Dec. 12.

And when Penton Farm Progress reached out to Tyner in response to this release and asked about diesel prices, he says "prices are expected to remain low for some time. No rush to buy." For producers looking to lock in supplies at good prices to keep costs more in line with falling commodity prices, this is good news.

A glut of oil hitting the market has cut prices, offering energy buying opportunities for consumers, and farmers. (Photo: David Hecker, Getty Images News)

In the Purdue release looking at gasoline prices, there's uncertainty over how much farther gasoline prices are expected to fall. That depends on the price of crude oil, which slipped below $60 recently from a recent high of over $105 during the past two years.

In the release Tyner says the prices is likely to go lower. "On balance, this decrease in gasoline prices is quite good for the economy."

That drop in the price of crude was enough to increase U.S. gross domestic product by about 1%. This is significant considering the GDP - the nation's value of goods and services - is increasing by a rate of 3% annually.

This boost is providing consumers a bump in household income. In fact, the Wall Street Journal recently said this new lower price for gasoline offers a new take on "pay at the pump." Since the greater savings adds up to a pay increase for the average household.

The downside to the oil price slump is the impact on oil producing companies. Tyner notes that the oil industry, including exploration companies, will be cutting their investment budgets for 2015, likely leading to some job losses in that industry. Still, he expects refining will continue to be profitable.

Here are some reasons for the sliding oil price and the at-the-pump benefits:

* OPEC decided in late November not to cut production, a decision that sent crude oil prices tumbling further.

* U.S. crude oil production has increased by 1 million barrels per day in each of the past three years, Tyner said. "This U.S. supply increase is a major part of the current price story."

* Production also has increased in North Africa and the Middle East. "Libya, for example, is now producing a lot more, but it is not clear how long that will last," Tyner said.

* While the U.S. economy is doing well, the economies of the rest of the world are not. Europe and Japan are growing at less than 1 percent per year, and China and India are growing more slowly than normal. Russia is in recession. Tyner said that because oil demand is driven by economic growth, when the growth slows so does global demand for crude oil and products.

Source: Purdue University

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