Special thanks to Source One Management Services for this guest post

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Have you stopped by the pump to fuel up your car recently?  If so, your wallet may not have felt that much lighter afterwards.  Do you remember filling your gas tank back in 2008?  Paying at the pump then probably felt similar to wringing your wallet dry as gas prices were at a peak.

Much to the joy of many American consumers right now, gas prices are continuing to slide downward.  Gas prices are at their lowest since April, with the national average for a gallon of regular unleaded gas going for $2.14, according to AAA.  To put this in perspective, AAA reports a year ago gas was $2.69 a gallon on average for regular unleaded fuel.  In 2008, as some consumers will remember, gas hit a high of $4.11 a gallon for regular unleaded fuel.  Even with the national average currently at $2.14 a gallon, the most popular price throughout the nation currently is $1.99 a gallon for regular unleaded fuel.

In the face of cheap gas prices, consumers are soaking up the savings and hitting the road.  This year has seen a record number of road trips and this summer season is no exception.  Consumers are enjoying the lowest seasonal prices in 12 years.  Less than 1% of gas stations in the U.S. are selling gas at $3 a gallon, which means affordable gas is in ample supply almost anywhere a road trip could go.

Regionally, gas prices can fluctuate, even if the overall national average remains fairly steady. This is something travelers could encounter, depending on circumstances and how far they travel.  Problems at a refinery, cuts to production at the local refinery, or even stronger demand than was planned for are all reasons gas prices could go up within a given region.  Additionally, for most areas, the summer season comes with an increased possibility of weather threats that are not as typical at other times of the year.  Weather can impact gas prices if storms cause conditions that lead to disruption in either the distribution or production or both of gas.

In addition to the joyful savings consumers are experiencing on the roads, lower gas prices also translate to other savings as well.  Airline prices tend to fluctuate based on fuel prices, transportation costs of goods fluctuate and trickle down to the prices of goods encouraging consumer spending. The transportation sector benefits as well when consumer spending increases.  The more consumers buy, the more goods need to be transported between locations, creating an uptick in business and a positive cycle of both spending and saving.  Additionally, as the fuel prices remain low, this can create larger margins, making business more lucrative for logistics and freight companies.  In general, this creates a win-win situation for everyone in the transportation sector.

Low gas prices saved consumers $115 billion last year according to AAA.

When savings go bad… There is a point when low oil prices are not a good thing.  Though consumers do not see the effects right away, in the long term, this “good” can go “bad.”  From an economic standpoint, lower prices boost the GDP and consumer spending.  This leads to lower inflation.  On the surface, lower inflation sounds really wonderful to most people.  The catch is when inflation goes too low and the reverse happens—prices begin to drop and deflation happens.  Deflation causes falling prices across the board and initially, this seems really wonderful to consumers.  Unfortunately, as prices fall, so do profits at companies producing the goods, and then a whole domino effect occurs that is bad for the economy and for the consumer.  The trick is to keep inflationary forces stable and low.  Low enough to not hurt consumers overall but high enough to reduce the risk of deflation or falling prices from happening.  This is why, although consumers are enjoying low gas prices due to low oil prices, economists are carefully watching.

What the future holds, no one can know for certain.  The important thing is to be optimizing the present.  Is your company enjoying all the savings attached to low gas prices right now?  Some expenses may have automatically reduced but have you looked into all your contracts and agreements to see if your company is benefitting from ALL the savings that are possible?

Categories: Procurement


Published On: August 31st, 2016Comments Off on Gas Trickles Down