Hamilton: Wait a Week or Two to Get Gasoline

Professor James Hamilton has a nice post up on his site regarding the near-term trends in gasoline prices and what’s coming down the line.   As you likely know by now, oil prices and thus gasoline prices have taken a serious dive in recent weeks and the implications could be important for economic growth.  But he’s not all that optimistic about the effects on growth.   The good news, on the other hand, is that Hamilton says you can probably save a few bucks in the coming weeks if you wait to buy gasoline:

“With Brent on Friday at $91.50 and an average retail gasoline price about $3.47, we’d thus expect gasoline prices to come down another 35 cents a gallon or so from where they were on Friday. Historically those adjustments usually come pretty quickly. For example, last December U.S. gasoline prices temporarily fell about 25 cents/gallon below the long-run relation, but by March they were right back on track.

If gasoline prices do fall from their value in April near $3.92 to $3.12, that would be an 80 cents/gallon swing. With Americans buying about 140 billion gallons of gasoline each year, that translates into an extra $112 billion over the course of a year that consumers would have available to spend on other things besides gasoline.

So should we be celebrating? I’m afraid not. The primary reason that oil prices have come down is because of growing signs of weakness in the world economy. I am very concerned about where events in Europe are going to lead, and recent U.S. data indicate some weakening. Cheap gas helps, but not so much if you don’t have a job.

But I will offer this advice: wait another week or two if you can before filling up the tank.”

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • LVG

    $112 billion is almost certain to bolster the economy in the near term don’t you think?

  • Pod

    $112 bn is about 80 bps gdp were it recycled into other spending w/o a multiplier; but this ignores the reason for the decline in oil in the first place; a weakening economy. so add the 80 bps to a number that will be 300 bps less than expectations, all else equal.

  • steelerdude

    The fed wont like the falling prices….that means less tax revenue…heck, Obama is already asking for wedding gifts for his campaign! LOL

  • Dandy Dale

    the Obama administration and the Saudi government clearly came to an arrangement.
    when faced with an SPR release the choice for the Saudis was pretty simple
    this was the “stimulus” that the administration agreed upon
    http://libertyblitzkrieg.com/2012/06/21/twisted/

  • Richard Burk

    Really? I thought it had to do with the Saudi’s determined to lower the price per barrel to the $70-80/barrel range in order to eliminate the profit motive of USA producers to bring their wells back online and for alternative extraction methods to stop dead in their tracks as they need the price per barrel at $80/barrel or more to make profit. If the Saudi’s can keep the prices down below where it is profitable for alternatives to produce gas then they maximize their profits without seeing an erosion of said profits. Given that they make proftis when $/barrel is down around $20, they make a huge profit and arent willing to share the spoils. It is not rocket science or brain surgery, it is greed pure and simple. OPEC wants their power back and their are willing to do whatever it takes. They arleady know that they can plunge the planet into a world-wide depression by raising prices. They now realize that they are the bankers on the planet. The world has been their testing grounds since Jr started running for office in 2000. They’ve had 10+ years to perfect their pricing policies. Run the competition out of business by lowering the world prices to levels that the alternatives cant compete and maximize profits. They also figured out how to manipulate the value of the USD to some extent, though it seems that the USD was more resilient than the EURO. Just wait for the OPEC countries to start buying up Europe kind of like the Chinese have been buying up the USA.

    Keep this in mind, the Chinese locked the value of their currency to that of the USD and have manipulated their currency to advance their own agenda which doesnt bode well for the USA much less the rest of the world. So basically the Chinese have been effectively printing money for years valued similarly to the USD thus eroding the value of the USD while building up their economy.

    Two separate efforts to control the world at the expense of others. China negotiated contracts with various OPEC countries to keep their economy supplied with oil for 20+ years and at a stable price. Through subsidizing their economy by printing more money, the price of oil is considerably cheaper than here in the USA.

    with a population over 5 times ours and a manufacturing base mostly located in China and hardly anywhere else and through currency manipulation of tremendous proportions, it is no wonder that they are doing so well. They only aspect that they may not have expected was the effectiveness of the new bankers to control the world economy and keep it in recession for much of the last 10 years. OPEC basically has starved the world economy with recession which has forced China to continue to make stuff with no one to sell just to keep everyone working. Eventually even China had to succumb to the new bankers, OPEC.

    Now that they have succumbed, OPEC seeks to maximize their profits and marginalize everyone else. Why do you think that some many in the USA now want the USA to be independent. Its because we are realizing that in order to protect ourselves, we have to do it ourselves. We cant rely on cheap goods from China to keep us employed. We cant rely on OPEC to provide cheap oil. We have to wake up and step up to save our country from being controlled by OPEC and China.

    We need to figure out how to grow our alternative approaches to energy, restore our manufacturing base, and grow our economy. We need to fix our tax code by getting rid of the loop holes and supporting ourselves and making sane policies that keep jobs here, encourage jobs to come here, and work towards bettering ourselves rather than trying to take care of the rest of the world.

    I think it is time that we bring home all of our troops. Do we really need troops stationed in 120+ countries around the world? Are we really that afraid of Japan and Germany that we have to have our troops stationed there? Are we really that afraid of a bunch of people living in caves and underground holes that we have to keep our troops their? If we are that afraid, then we really have big problems. Our internal problems hurt us so much more than these wars overseas. Had we invested all the money we spent overseas in infrastructure, we’d be a power house of a country right now. We can still do it and it will take longer for the investments to pay back because we are already so far in debt, but investing in ourselves only makes us stronger. We continue to have the most dynamic and resilient economy in the world.

    That’s my two cents.

  • jay fredericks

    @Richard Burk
    The best two cents I have read in a long time that is right on target and needs to be sent to every politician in this country.

    If the people were in charge we would all be doing exactly as you have written but alas “we the people” are being led around by the acting chief socialist in charge.