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Global Economics

Low Gasoline Prices May Put $30 Billion in Consumers' Wallets

Gasoline prices have been falling for most of 2013 and are about 12 percent lower than they were a year ago. That’s a savings of about 50¢ a gallon. With the economy flatlining at around 2 percent annual GDP growth, that’s a nice boost to consumers living with stagnant wages and not a lot of new job creation.

Bloomberg Data

The economists at RBC Capital Markets (RY) think that savings at the pump will add about 0.2 percentage points to GDP growth in the fourth quarter. If national prices average around $3.30 a gallon over the next several months, that’s about $30 billion of extra cash staying in consumers’ wallets during the fourth quarter compared with last year, says Jacob Oubina, senior economist at RBC Capital Markets.

“No one’s really talking about low gasoline prices, but we see it as a very important mitigating factor,” says Oubina.

About 70 percent of the price of gasoline is a function of the price of crude oil, according to the Energy Information Agency. With global demand for oil relatively flat and supplies growing, oil prices have remained in check for much of the year.

U.S. oil prices (orange line) are still $9 cheaper per barrel   than international prices for crude.Bloomberg DataU.S. oil prices (orange line) are still $9 cheaper per barrel than international prices for crude.

Domestic crude, priced against the West Texas Intermediate benchmark, is still cheaper than its international equivalent, Brent. That’s an added advantage to U.S. drivers, as U.S. refiners continue to replace imported crude with cheaper domestic supplies.

Philips is an associate editor for Bloomberg Businessweek in Washington. Follow him on Twitter @matthewaphilips.

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