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Cheaper Gas: Good for Consumers, But Not the Economy

Lower gas prices could be a signal of economic troubles ahead.
October 16, 2014

​NEWINGTON, Conn. – With recent gas prices dropping under $3 per gallon at retail locations across the country, consumers are breathing a sigh of relief.  But it’s not all good news, as lower prices could also signal economic troubles ahead.

The nationwide average for a gallon of regular was just under $3.19 this week, according to AAA, with 30% of gas stations nationwide selling gas for less than $3 a gallon … and falling. But the plunge reflects ongoing weakness in the global economy, and some of the factors behind the drop could affect the U.S. economy beyond Big Oil's bottom line, experts told the Associated Press.

Prices are dropping just as demand drops and production booms, worldwide, and as the robust U.S. dollar remains at a four-year high against other currencies, the news source reported. Domestic oil production is at an all-time high, but too steep of a price drop could discourage continued domestic production if production ceases to be profitable.

And while prices haven't fallen that far yet, they're expected to keep dropping, barring a global economic turnaround or a production cut by OPEC. It's unclear what OPEC might do next to reverse the trend, with leaders of the group’s oil-producing nations split.

And while the domestic production boom can help insulate the U.S. economy against the tumult of global markets — especially given instability in the Middle East — the United States could have a hard time exporting its oil products, which tend to be costlier than oil from elsewhere. What that means for gas prices is unclear, say news reports, at least until OPEC takes action.