Tuesday (April 14) brought a dose of reality to the economy as retail sales were surprisingly sluggish. President Obama also reminded Americans who have been growing more hopeful, that we are not out of danger yet. On a more positive note, though, forecasts for gasoline prices over the busy summer driving season show a tremendous savings over last summer when gasoline peaked at $4.115 per gallon during July.

As has been the norm of late, oil fell in line with the stock market on the economic concerns. The price of crude fell below $50 with a 64 cent drop on Tuesday, to close at $49.41. With a stall in the recent stock market rally, oil prices could remain at or below $50 in the short term, which would help keep fuel prices down.

The Energy Information Administration said Tuesday in its summer forecast that regular gasoline will maintain a monthly price average of $2.23 through September, with a peak around $2.30. If the forecast holds true, drivers would experience a significantly lower cost to drive. During the same the summer driving season (April 1-September 30) in 2008, the average monthly cost of fuel was $3.81. It still appears as though consumers and businesses are in cost cutting mode, as gasoline use is only expected to increase by about one per cent, even with the savings.

The overnight national average rate for a gallon of gas was $2.05, a drop of .1 cents, according to AAA, Wright Express and Oil Price Information. Gas is 14.2 cents more than it was a month ago, although still well below levels at this time last year.

Supply and demand data shows that current fuel prices could be set for a while. US gas consumption was down by 1.3 million barrels a day during 2008, and the EIA projects another drop of 430,000 barrels per day in 2009. This is the demand side that has helped keep prices from climbing.

While use of oil will fall this year, US production is expected to significantly increase. The forecast is for 2009 growth in oil production in the US of 440,000 barrels per day, also helping to add supply, which keeps prices down.

One reason that travel and gas consumption is not expected to grow dramatically this summer, despite the better fuel rates, is the continued focus on cost cutting by companies. Many businesses are still operating with fewer trucks for transport, or fewer non-essential trips. Several organizations have placed freezes on out-of-state travel, or travel that is not vital to basic operations. With retail sales down and companies still struggling, even cheap fuel may not be enough to entice companies to hire more drivers and to send more employees on trips.

Neil Kokemuller
10:08 PM EST
Tuesday, April 14, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.
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