Will cheap gas prices stick around?

- Your first Christmas gifts has arrived – at the gas pump.

Just in time to free up cash for the frenzy of holiday buying that arrives after Thanksgiving, the price of gasoline has dipped to its lowest level in nearly a decade. Rejoice.

But why? And will it last? On Monday, we set out to answer some common questions about the miracle of $2 gas.

WHY HAS IT DIPPED?

For commodities traders, the oil market is in turmoil. Crude oil has slid 46 percent over the past year, from $80 a barrel to $46. Global supply is high at the same time global demand has slumped. It’s textbook economics. When supply is up and demand is down, prices fall. And they have.

WHY HASN’T IT FALLEN MORE?

Gasoline is 27 percent cheaper today than it was a year ago, according to AAA. But the price of a fill-up hasn’t fallen as sharply as crude oil—you’d think they move in tandem. Why not? Oil companies blame refinery hiccups. When plants that convert crude oil into gasoline go offline (maintenance, accidents, fires, etc.) gasoline supplies dip and prices either edge up or don’t dip as much. And they have.

HOW LONG WILL IT LAST?

The Energy Information Administration predicts gas prices will continue to fall through the end of the year. The national average for unleaded will fall from $2.19 today to $2.03 around Christmas, according to the EIA.

The average in the Tampa Bay area is $2.01, according AAA’s daily Fuel Gauge Report. Some stations are already selling gas for less than $2 a gallon, and that downward trend is expected to continue.
The EIA is predicting a modest increase in gas prices over the next year or so. By next Christmas the EIA expects the price of regular to climb to $2.16 a gallon.

IS IT GOOD FOR THE ECONOMY?

It depends on who you ask. Really, it boils down to whether we are saving or spending the extra cash we’re not pumping into the fuel tank. In an unscientific poll on Twitter, we asked whether drivers are saving for spending their fuel savings. And 70 percent were spending, while 30 percent said they were saving.

For a consumer-based economy, that’s a positive sign.

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