It's been interesting to watch the oil prices over the past couple of months. It wasn't all that long ago everyone was expecting gasoline to hit $5 per gallon, with heating oil and propane not too far behind.
Today we saw regular gas selling for $2.139 per gallon. We filled up the tank of the trusty Intrepid for $1.869 per gallon this afternoon (one of the local supermarket chains and oil companies have a promotion that gives customers of both up to 80¢ per gallon discount). $1.869!
One would think that with gas prices having fallen approximately 50% since the peak early this past summer that gas consumption would go up. But it hasn't. People are tightening their belts, cutting back on expenses in light of the recession we appear to be entering. Unnecessary trips are out, combined trips are in, no different than when gas was selling for over $4 per gallon this summer.
Heating oil and propane prices have fallen as well, though not quite as much as gas prices. This is one of those good news/bad news stories for homeowners. The good news is that the lower heating fuel prices won't put as much of a strain on the household budget. The bad news is that many homeowners locked in their fuel prices back in August/September, meaning they're obligated to pay the pre-buy price even though prices have fallen below that. That means some folks may have paid $4 per gallon for heating oil everyone else will be able to buy for $3 or less. It's a gamble homeowners take, and this time around they lost the bet.
Deb and I did a pre-buy of propane and so far the 'street' price has not fallen below the price we locked in. Even if the price drops below that, it won't be all bad because we bought a minimal amount – enough to run the water heater, dryer, and if needed, the furnace (only needed on those days/nights where the temperature is below zero because our woodstove can't keep up when the temps are that low).
With the 'oil bubble' deflated and decreased demand, OPEC decided to cut production in order to prop up oil prices. Unfortunately for them oil prices continued to drop.
A downside that not too many of us think about when it comes to reduced demand for gasoline and diesel: fuel tax and toll revenues also drop. This drop in revenue can have an effect on road construction and repair, as one state has found out.
All in all, lower oil prices will certainly help the consumer stretch their dollars, though I doubt we'll see a return to higher consumption any time soon.