The latest data from the U.S. Energy Information Administration showed that the average cost for Regular gasoline in America rose (fractionally) over the past week to $2.55 per gallon. That was the first increase since July following the almost 6-month low hit in the prior week. Regionally, the cheapest gas in the country as of this writing can be found in Louisiana, where a gallon of Regular costs just $2.19 on average, while residents of California as usual have to pay the most in the continental U.S. for Regular ($3.61/gallon). A major factor behind the recent decline at the pump has been a drop in the price of crude oil caused in part by the global economic slowdown (softer demand), but another key variable, supply, took a significant hit over the weekend.
Indeed, an apparent drone strike on major Saudi Arabian oil facilities has resulted in a production shutdown of roughly 5.7 million barrels a day, or more than 5 percent of worldwide supply. That was the largest output disruption on record and unsurprisingly resulted in one of the biggest intraday spikes in the price of oil ever, although all of this so far has merely brought prices back to levels seen this past spring. Such energy market tumult is the kind of shock that the economy is more sensitive to when the yield curve is inverted, especially since the consumer has been the main driver of the record-long expansion. Moreover, cheaper gasoline in recent years failed to provide a significant boost to household spending, but a sharp uptick in price, if it persists, could have a more pronounced effect to the downside. There is a chance this new disruption will be less severe than initially feared if the Saudis can make substantial repairs while they still have inventory to deliver. Further, America’s reliance on foreign oil has been declining and although still far from energy independent, the U.S. is now better-equipped to handle prolonged overseas supply headwinds.
Sources: U.S. EIA, GasBuddy, Bloomberg, Twitter, FRBSL
Post author: Charles Couch