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Beware of Falling Gas Prices

Posted By Barry Ritholtz On November 11, 2013 @ 1:30 pm In Economy,Energy | Comments Disabled

iBP7EB3t9S9o [1]
Source: dshort.com [2]


The American Automobile Association [3] reports that the average price of a gallon of regular gas is $3.19. (The U.S. Energy Information Administration [4] has regular gas at about $3.26).

Since peaking at the end of July 2008 at $4.11, then collapsing to $1.65 that December, Gasoline prices have been on a wild ride. Since rallying back to almost $4 in May 2011, gas prices have been range-bound, gradually drifting lower.

There are a few factors driving this: Total miles driven has not recovered from its November 2007 highs. It is off almost 3 percent from its highs of more than 5 trillion vehicle miles driven annually. Persistently elevated unemployment of 7.3 percent means there are that many fewer people driving to work. And the pre-collapse shift to the exurbs — and their much longer commutes — suggests the trend toward ever-longer commutes may have topped out.

To put gasoline prices into the starkest relief, consider adjusting total U.S. miles traveled on a per capita basis. The chart above, via Doug Short, reveals that per capita miles driven peaked in June 2005. They have since fallen almost 9 percent. The last time we saw average annual mileage at these levels was back in 1995.

No wonder gasoline prices have been falling. At present, gasoline prices are below $3 in six states. If demand continues to drop off, we may soon see an average U.S. price of under $3.

While some analysts are applauding what this means for consumer spending, I am much more concerned with the demand side of the equation. The economy remains filled with soft spots and pockets of weakness.

click for interactive map
Source: <a href="http://money.cnn.com/2013/11/11/news/economy/3-dollar-gas/index.html" title="Link: http://money.cnn.com/2013/11/11/news/economy/3-dollar-gas/index.html">CNN Money</a> [5]Source: CNN Money [5]




Published at Bloomberg View [6]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/11/beware-of-falling-gas-prices/

URLs in this post:

[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2013/11/iBP7EB3t9S9o.png

[2] dshort.com: http://www.advisorperspectives.com/dshort/updates/DOT-Miles-Driven.php

[3] American Automobile Association: http://newsroom.aaa.com/tag/gas-prices/

[4] The U.S. Energy Information Administration: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W

[5] Image: http://money.cnn.com/2013/11/11/news/economy/3-dollar-gas/index.html

[6] Published at Bloomberg View: http://www.bloomberg.com/news/2013-11-11/beware-of-falling-gas-prices-ritholtz-chart.html

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