HARRISONBURG - In one bright spot amid the nation's financial turmoil, gas prices across the country have dipped dramatically in recent weeks, coming in at below $3 a gallon at many Harrisonburg stations.
While the average statewide price of gasoline for regular unleaded is $3.12 a gallon, down 6 cents overnight, average prices in the Richmond area officially dropped below $3 a gallon to $2.98 on Monday.
"The ‘why' is pretty simple," said Bill Wood, an economics professor at James Madison University. "Demand for most goods is shrinking. People are spending less in general, and also less on fuel-intensive goods and services."
For example, Wood said, travel is especially fuel-intensive, and it's also discretionary spending that people can and do cut back on when money is tight.
And the good news is expected to continue for consumers: "AAA expects gas prices to fall faster and further in the days ahead," said Martha Meade, manager of public and government affairs for AAA Mid-Atlantic, in a press release.
The organization predicted that the nationwide average price of gas would be near $3 a gallon before Thanksgiving.
Crude Oil
Crude oil prices have been volatile since topping out at more than $140 a barrel in July, but more recently have been dragged down by lower consumer confidence and less spending in the face of Wall Street's financial drama.
On Friday, the prices dropped to the lowest point in 13 months to about $77 a barrel. Monday saw a slight gain of $3.50 per barrel, with prices closing around $81.20.
The price of crude oil accounted for 72 percent of retail gas prices in the first half of 2008, AAA said, leaving "no question" that gas prices will follow crude oil's downward trend.
In addition, AAA said, the U.S. dollar is gaining strength as Europe deals with its own banking crisis, which is significant since crude is traded in dollars and a strong dollar bodes well for lower prices.
"The last time crude oil prices hovered at the $80 per barrel mark, pump prices were below $3 a gallon," according to AAA.
U.S. motorists are also driving less with each passing month, according to AAA Mid-Atlantic.
Nationwide gas consumption slid 5 percent last week to its lowest level since September 2005, according to a MasterCard SpendingPulse report.
Consumers are stuck in a "tug-of-war," with the slow economy pulling gas consumption down, but the lower prices pushing it up.
But the extra money that people won't be spending on gasoline can only have a positive effect on the economic situation.
"Something will happen with that money, and whether it's saved or spent, both are positive," Wood said. "If it's saved, people are in stronger financial positions individually, and if it's spent, it shores up consumer spending nationally."
Hitting Bottom
Wood said he expects that when the economy finally turns around, gas prices will be on the upswing.
But that won't be for a while, and he's looking for two indicators to show that the economy has begun its recovery.
"One would be firming of house prices, and the other would be improvement in the financial markets," he said. "When we've passed the lowest point in both those markets, the economy could recover relatively quickly."
Meanwhile, the political impact of gas prices is "washed out" by the overwhelming effect of the financial markets, Wood said.
"When you look at consumer worries, being unemployed is a much bigger worry than having to pay a high price for gas," he said. "The thing is, there are a lot of things we can adjust to. People handled $4 a gallon gasoline better than predicted, but unemployment is much more difficult."
Contact Kate Prahlad at 574-6277 or kprahlad@dnronline.com
