Declining oil prices are showing up at the pump.
While it’s not officially the summer travel season, American motorists are getting a bit of a break as oil prices continue to dip, benchmark crude falling below $100 in recent days and taking another tumble in the wake of the political shake-up in Europe.
Crude prices have fallen nearly 15% since peaking in late winter and with U.S. motorists driving less even as inventories rise the equation suggests prices could keep falling. Adding to the downward momentum: sluggish job growth and other weak economic news.
According to the AAA’s Daily Fuel Gauge Report, prices have been falling steadily in recent weeks and are now down almost 16 cents since early May for a gallon of self-serve regular unleaded. Diesel prices, on average across the country, have dipped about eight cents.
Nonetheless, there are plenty of reasons to remain concern, the International Monetary Fund recently warned. Pointing to the ongoing debate over Iran’s nuclear program it issued an advisory cautioning that, “in case of supply disruptions, oil prices could increase by $20 to $30 a barrel. A cut in Iranian exports could be exacerbated by below average oil stocks in many countries.”
But, for the moment, oil supplies are flowing freely. In fact, in the U.S., crude inventories are now at their highest level since the 1990s, reports the U.S. Department of Energy.
That’s just one reason that prices fell to below $98 a barrel in trading in Europe today and could tumble even lower in the States. That’s well off a February peak of $110.
What is turning into a glut of oil is running into the potential of another global economic downturn, with Europe a particular train wreck in the making. The conservative government of French President Nicholas Sarkozy was ousted over the weekend for a more liberal leadership more in favor of government stimulus programs. The Greek electorate also voted against German-backed austerity measures. And that follows other setbacks in Greece and elsewhere.
Meanwhile, the U.S. Labor Dept. on Friday revealed the American economy added only 115,000 new jobs in April, well short of the 165,000 anticipated.
“Lackluster macroeconomic conditions, easing global tensions and bearish fundamentals have started to weigh on oil prices,” noted a report from Morgan Stanley.
And that’s good news for U.S. consumers who may be saving $2 to $3 a tankful since just a month ago. According to the AAA’s daily report the national average for self-serve regular is at $3.777 as of Monday morning, compared to $3.816 a week ago and $3.932 a month ago. Significantly, fuel prices are also down when compared to a year ago when regular stood at $3.975 a gallon. Diesel is at $4.083 as of Monday, down from $4.166 a month ago and $4.246 this time last year.
But before motorists celebrate too much, geopolitical turmoil could trump all the economic factors currently driving down oil prices. In particular, there are the sanctions on Iranian oil exports and the possibility of further supply cuts, warned a J.P. Morgan report.
“The reality,” it stressed, “is that any short-term weakness in energy prices is likely to prove limited.”