Cheaper gas would normally be a welcome relief, but there are several downsides at play. Declines in oil and gas have signaled a weaker economy in the U.S. and across the globe. And while paying less to fill up the tank will mean extra savings for U.S. consumers, it's questionable how much those savings will boost overall confidence and translate into more spending.
Oil prices recovered some this week, but sharp declines in May still hover over the market. On Friday, oil plunged nearly 4% after a bleak report on U.S. jobs growth and slowing manufacturing activity in China raised worries about a slowing global economy and softer demand for oil. Gas prices hadn't fallen below $3.60 a gallon since mid-February, but over the weekend, the national average dropped to $3.585 a gallon. At a few stations in South Carolina and Virginia, prices fell just under $3 a gallon.
Nationwide, gas prices hovered at $3.61 a gallon on Tuesday, down 18.2 cents from last month and 16.2 cents lower than last year. Brent crude, used to price international oil, is struggling to stay above $80 on the New York Mercantile Exchange -- earlier this year it was going for more than $100 a barrel.
Economists watch gas prices closely, as they consider anything above $4 a gallon the point at which costs start crimping consumer spending, which largely drives the U.S. economy. As a rule of thumb, about $1.2 billion in extra spending is typically generated for every one-cent per gallon decline for the year, says Chris Lafakis, economist at Moody's Analytics who specializes in energy and financial markets. But such savings may not be enough to offset the world's economic malaise that has also driven oil prices lower.
For one, Greece could leave the euro any week now as European leaders struggle to find a solution to its debt crisis. In China, the latest signs point to a slower growing economy. And evidence is building that the U.S. economy has entered a soft patch. All this has unnerved investors, who've increasingly questioned the strength of demand for oil and other energy-related products.
Analysts predict gas prices will likely stay subdued at least through the summer, but it's uncertain if that will be enough to make consumers feel any better about spending more.
In April, U.S. retail sales rose only 0.1%. Even after excluding gas station sales, consumers increased their spending on retail goods by just 0.2% as gas prices fell.
If anything, consumers appear mixed about their economic prospects. At one end, consumer confidence rose in May to the highest level since October 2007, according to the Thomson Reuters/University of Michigan Surveys of Consumers. Of course, that survey places more weight on gasoline prices than the Conference Board's survey, which puts greater weight on employment and showed consumer confidence fell to a five-month low during the same month.
Indeed, some consumers might find relief at the pumps. But for the millions of unemployed Americans, gas at even $2 a gallon probably won't be enough to change their behavior.
Today's high gasoline prices prove that drilling for more oil in the U.S. doesn't lower energy costs. We have Wall Street to thank for that.
By Leah McGrath Goodman, contributor
FORTUNE -- The U.S. is now selling more petroleum products than it is buying for the first time in more than six decades. Yet Americans are paying around $4 or more for a gallon of gas, even as demand slumps to historic MOREApr 11, 2012 10:27 AM ET
Debt ceiling debates! European fiscal mayhem! High unemployment! Don't let it get you down. Your portfolio may survive just fine.
By Brendan Coffey, contributor
FORTUNE -- The dog days of summer have brought with them a lot of whimpering about the stock market. The truth is, things aren't as bad as they seem. At the risk of having a John Jakob Raskob moment, especially in light of the action this week, here MOREJul 14, 2011 8:15 AM ET
With macro factors deteriorating, it's time to short oil stocks and go long the dollar.
By Lou Gagliardi, Hedgeye
We are now leaning more bearish on oil equities, mainly due to worsening macro factors. We've also turned bullish on the U.S. Dollar (USD) as the Fed's second round of quantitative easing is ending and there's little upside to the euro as the EU continues to socialize the periphery's fiscal imbalances at every MOREJun 15, 2011 12:36 PM ET
The dollar took another drubbing Thursday as inflation hawks spread their wings in Europe.
The euro climbed near $1.40, putting it up more than 4% on the year (see chart, right), after European Central Bank chief Jean-Claude Trichet said the ECB may raise its benchmark interest rate as early as next month.
"Risks to the medium-term outlook for price developments are on the upside," Trichet said. "They relate, in particular, to higher MOREColin Barr - Mar 3, 2011 10:09 AM ET
|AT&T cuts prices again|
|Ukraine crisis: Aid, sanctions and fallout|
|Malaysia Airlines stock sharply lower after plane vanishes|
|Winners and losers of the bull market|
|The medical marijuana ad that never aired, despite contrary media headlines|