Oil, Gas Prices Plummet as Economy Sours

While jobless numbers and foreclosure rates rise, one look at the graph attached to this story from the Energey Information Agency shows that gasoline prices have plummeted since this economic crisis began.

On July 11th, oil hit its record high of $147.27 a barrel, and gasoline was $4.117 a gallon on July 17. On Friday, light, sweet crude for January delivery settled at $40.81 a barrel on the New York Mercantile Exchange. That's less than 1/3 the price in July.

Meanwhile, according to AAA, the Oil Price Information Service and Wright Express, gas prices are now $1.773 nationally.

Why the big drop? As with anything, it's all about supply and demand. Part of the pricing of oil, additionally, is based on future demand. With a global recession in place, oil demand around the world is anticipated to drop, and it already has.

Meanwhile, Americans travel less and drive less. All of this means less demand for petroleum products.

But while prices plummet, might that not spur the economy? It's possible, at least, that the huge drop in gasoline and oil prices will reduce prices at grocery stores and elsewhere. Empirically, however, I haven't seen it: prices at the grocery store, for example, are no lower than previously.

The only major price drops that are being felt are in terms of items that retailers want to sell for the holiday, not for staple items like food. Will that change? It seems like it would have to, but there's one thing we should remember: people need food, people want consumer electronics.