The Bright Spot of Market Collapse: Gas Prices


Gasoline prices are likely to plunge. The same economic concerns that have prompted a massive sell-off in equities have also driven down the price of crude. It has retreated to $83 from over $110 in late April - a drop of 25%. Gasoline prices usually follow oil down although not in lockstep. Refinery costs often interfere with the differences in the rate of ascent or descent.

If the 2008/2009 recession is any indication, crude could move toward $60. The drop helped push gasoline prices down to $1.62 per gallon for regular in early 2009.

There has been concern that as gasoline approached $4 a gallon in the spring it could cripple the U.S. economic recovery. American families, it was theorized, would cease whatever consumer spending they had begun when the recession ended. Families with two working adults who commuted to jobs would have to pay hundreds of dollars more a month to operate their cars. The price of gas still averages $3.70 nationwide for a gallon of regular. That is up from $2.75 a year ago, so the price would need to collapse to ever return to mid-2010 levels.

A new recession has almost certainly begun. Damaged consumer activity and PMI figures have shown that. A relief in gasoline prices could keep a new dip from being a brutal one. Consumer costs would fall with gas prices. And the undermining of margins at companies that rely on gas to fuel vehicles, such as FedEx (NYSE: FDX) and Southwest Air (NYSE: LUV), and those that rely on shipments by truck or airplane, such as McDonald's (NYSE: MCD) and Wal-Mart (NYSE: WMT), would end.

A drop in gas prices will not keep a recession from happening. It would, however, soften the blow.