Dropping oil prices could help confidence rise
NEW YORK — A threat that's been hanging over the economy is starting to look a lot less menacing.
Oil and gasoline prices are sinking, giving relief to businesses and consumers who a few weeks ago seemed about to face the highest fuel prices ever.
President Obama's re-election prospects could benefit, especially if prices keep falling as analysts expect. A majority of Americans disapproved of Obama's handling of gas prices in an AP-GfK poll early this month. But that was before the full effect of the recent drop had reached drivers.
The average retail gasoline price has dropped 21 cents a gallon to $3.73 since hitting a 2012 peak of $3.94 on April 6.
The economy could gain, too. Consumers who spend less on fuel have more to spend on other purchases, from autos and furniture to appliances and vacations, that could help drive economic output and job growth.
The price drop will likely boost consumer confidence. It occurs at a timely moment: before the Memorial Day weekend, a busy one for travel and entertainment spending.
"It's extra money in the wallets of most American consumers, and that's going to help," said James Hamilton, an economist at the University of California, San Diego who studies oil prices.
Lower oil prices mean cheaper diesel and jet fuel for shippers and airlines.
Crude oil, which is used to make gasoline, is at a seven-month low of $92.81 a barrel. It's down nearly 13 percent since May 1. Behind the steady drop are larger fuel stockpiles, easing fears about Iran and expectations of lower demand as the global economy slows.
The average national gasoline price is expected to fall as low as $3.50 a gallon this summer. It could even dip near $3 in some states. The national average is being propped up by refinery problems in California that have lifted prices well above the national average there, according to Tom Kloza, chief oil analyst at the Oil Price Information Service.
A 50-cent drop in the gasoline price would save consumers about $70 billion over a year.
Earlier this year, oil and gasoline prices were jumping from high levels. Global demand was rising. And production outages were reducing supplies. Tensions between Iran and the West over Iran's nuclear ambitions raised fears that output from the world's third-biggest exporter would plunge.
Gasoline prices appeared on track to soar past $4 a gallon nationwide. Confidence among consumers, suffering from high unemployment and scant wage growth, would have likely worsened.
"People were prepared emotionally for $4.50 or $5 gasoline, so there's a sense of relief," Kloza said.
No one is yet overflowing with glee over prices. So far this year, gasoline has averaged $3.67 a gallon nationwide. If sustained all year, that would be the highest annual average.
John Heimlich, chief economist at Airlines for America, a trade group, is among those who aren't ready to cheer. Jet fuel prices dipped below $3 per gallon for the first time in months Tuesday, he said.
"I need more than one day below $3," Heimlich said. "I need weeks and weeks and weeks."
John Tillman, who runs Certified Carpet Care in Wesley Chapel, Fla., spends $4,000 a month on fuel for his vans that crisscross the state, visiting restaurants and other clients. He said gasoline prices are still way too high, and he thinks the government should do more to protect small businesses from high fuel prices. But he'll take any drop he can get.
"It's helped some," he said.