Gas Prices Tumbling

Great news if you have a car and like money: Average gas prices are tumbling, down 10% in the last two months:


Source: Energy Information Administration.

Oil explains most of the decline. Crude oil fell from $108 a barrel in March to $84 today.  The lag between oil prices and gas prices means there's a good chance gas will keep falling in the coming weeks, just in time for the summer driving season.

The savings that offers U.S. consumers can't be understated. U.S. drivers consume about 344 million gallons of gas a day. With average gas prices down $0.40 a gallon since March, drivers are likely saving around $4 billion a month compared with earlier this year, or about $30 per household, per month. That adds up.

Now, falling oil prices aren't exactly a positive sign, reflecting a growth slowdown hitting virtually every corner of the world. But gas prices change so quickly and consumers spend enough at the pump that falling prices have in the past provided one of the fastest and most effective forms of stimulus. One study from the Energy Information Administration concluded that a $20 rise in oil prices cuts GDP growth by 0.4 percentage point and pushes unemployment up by 0.1 percentage point. A fall in oil prices of the same magnitude could boost the economy by a similar amount.

But things might be changing. Thanks to a boom in domestic production, the U.S. is on track to import the least amount of oil this year in more than a decade. The old argument used to be that high oil prices were doubly bad for America -- bad for consumers who paid at the pump, and bad because we became more beholden to despotic dictators abroad. One side of that equation is becoming less relevant. High oil prices are still tough on consumers, but rising domestic production increasingly means high oil prices lead to high profits for oil explorers here at home -- indeed, oil and gas employment has surged in recent years to the highest level in two decades, and regions like North Dakota are veritable boomtowns. When you consider how fuel efficient new cars are these days, that could actually be an argument that we should want higher oil prices. Confused? This is a terribly complicated subject full of paradoxes.

Two big oil giants, ExxonMobil (NYS: XOM) and Chevron (NYS: CVX) , offer great dividend yields, and could do terrifically if America's energy boom continues. For another pick, check out The Motley Fool's special report, "The Only Energy Stock You'll Ever Need." It's free. Just click here.

At the time this article was published Fool contributor Morgan Housel owns shares of ExxonMobil and Chevron. Follow him on Twitter @TMFHousel. Motley Fool newsletter services have recommended buying shares of Chevron. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.