US Gas Dips Below $2 a Gallon

This morning, the American Automobile Association released its survey of US gasoline prices. It's now official; a gallon of regular will set a driver back only $1.989. In Independence, Missouri, there are stations selling it for $1.37 a gallon. That sounds like good news for Americans, but as most economists know, one doesn't get a silver lining without a dark cloud.

Crude oil prices are in free fall, and as a distillate of petroleum, gasoline becomes cheaper as a result. The drop in crude stems from the bursting of the speculative bubble that drove the price to $147 a barrel. In addition, global recession fears have put downward pressure on most commodities, the oil complex in particular. Moreover, the downward trend doesn't seem to be slowing. Many technical analysts suggest a test of $40 a barrel is in order.

Naturally, when prices fall, people consume more of the product in question. This means that those gas guzzling SUVs and sedans are attractive once again. MSNBC interviewed Laura Duemey, a 48-year-old receptionist from Columbus, who fueled up her Hyundai XG350 sedan. "It's awesome," Duemey said. "With this gas guzzler, there was no way I could afford to keep paying the way (prices) were going."

And that's the problem. Continued use of gasoline to fuel America's road fleet is simply a long-term disaster. At $4 a gallon, there was genuine interest in changing the overall structure of America's energy consumption. At less than half of that, people merely think “party on and fill 'er up.”

The lower gas prices will help in the next few months as the credit markets sort themselves out and lending begins once again. It will be an opportunity for Detroit to get rid of some inventory and cut its losses. However, if the Big 3 don't shift to greener, more efficient cars, it will be an opportunity wasted. Given their performance on Capitol Hill this week, the CEOs of America's car makers will probably miss the opportunity entirely.



© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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