Energy Economy

Why Analysts Think Big Jump in Gas Prices in 33 States Will Be Short Lived

While the precipitous drop in oil prices has been tough for the companies in the energy sector, it has been a solid boon to the pocketbooks of American consumers. In addition to providing extra spending money, it has to some degree kept a lid on transportation costs, which are expected to drop especially if the airlines resort to price wars next year.

A jump in the price of crude oil near the end of October helped to push retail prices at the pump higher in the first week of November. In fact, according to data provided by GasBuddy, 33 of the nation’s 50 states saw a modest rise while 17 states, many of which saw the prices react and jump at a much faster rate, have seen prices already start to taper back.

The report also noted that six states are seeing prices that are at or below what many consider to be a psychologically important level at $2 a gallon. The five states where motorists continue to enjoy the lowest prices include South Carolina ($1.94), Louisiana ($1.96), Alabama ($1.96), Texas ($1.98) and Mississippi ($1.99), which are seeing the nation’s lowest averages.

Analysts are optimistic that prices will fall back, and point to numerous reasons why. Specifically, continued high OPEC, and especially Saudi Arabian, production are keeping a glut on the market that is tough to plow through. With the busy summer holiday driving season over until next year, and refinery maintenance starting to wind up, the stockpiles have stayed significant. In fact, the GasBuddy report indicates that oil inventories remain 100 million barrels higher than year ago levels, and short of some drastic geopolitical black swan event, those elevated levels should stay in place for the foreseeable future.

The fact that oil is priced in U.S. dollars also helps to contribute to the ongoing price weakness. With the Federal Reserve very likely to hike rates in December after a strong October nonfarm payrolls report, the likelihood of continued dollar strength is certainly anticipated.

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The good news for consumers, and perhaps the overall economy, is the extra spending dollars could help to contribute to a very healthy holiday shopping season. With consumer spending almost 70% of the overall U.S. gross domestic product tally, fourth-quarter GDP could get a solid spending boost, one that could help what has been a very tepid year overall.