Dallas Fed: Consumers To Save $300 Billion On Lower Energy Prices

'Quarterly Energy Update' says prices decline, demand still dropping and world economic growth is slowing

DALLAS, TX, Feb. 19, 2009 -- The Dallas Federal Reserve today issued it's Quarterly Energy Update, confirming what most of us already know: Energy prices are falling daily.

The report says oil prices have fallen from an all-time high of $147 in July to $40 in the first week of February. Calling the decline, now over $100, "the most precipitous fall in recent history", the report notes that natural gas and refined products prices (gasoline and diesel) have followed oil down.

Gasoline Demand Drops Despite Plunging Prices
The nationwide average gasoline price is now $1.88, down over 50 percent from the peak in July. Even after the drastic decline in prices, demand continued to drop. In December, gasoline consumption fell by 301,000 barrels/day from the same period last year (–3.2 percent), and in November drivers traveled 12.9 billion fewer miles (–5.3 percent).


World Economic Growth Slowing Down
Adding to energy producer's woes, the Fed says member nations of the Organization for Economic Co-operation and Development (OEDC) are in a severe recession, which has stymied oil demand.

In addition, China, the largest oil consumer behind the U.S., saw economic growth slow to 6.8 percent in the fourth quarter. Other emerging economies have come under strain amid the global slowdown. While growth in these economies supported high prices in early 2008, their slowdown has precipitated oil price declines.

The Energy Information Administration (EIA) now estimates world oil consumption will fall by 1.2 million barrels/day in 2009. This will be the first time since 1982–83 that consumption has dropped for two consecutive years.

Consumers Benefit
The report says lower gasoline prices are a boon to U.S. consumers. The EIA estimates that gasoline prices will average $1.87 in 2009, and consumption is expected to drop from 9 million barrels/day in 2008 to 8.9 million barrels/day in 2009.

Based on those estimates, American consumers are expected to save over $190 billion on gasoline alone in 2009. When the overall decline in energy prices is taken into account total savings are estimated at over $300 billion.

But Prices Expected to Climb
In December OPEC cut its production by 2.2 million barrels/day in addition to the 1.5 million barrels/day cut in November. Russia also indicated it may pull several hundred thousand barrels/day from the market.

Despite current conditions, market experts the production cuts will push prices higher towards year's end. The futures market is predicting that the excess production capacity today will be trimmed and future demand will rebound, resulting in higher prices.

Source: Dallas Fed Quarterly Energy Report