When will lower oil prices translate to lower gas prices at the pump?
More jobs and more oil – two things we have to be thankful for. When Americans are gainfully employed, they spend more and the economy grows. When there’s extra oil supply, its value drops and gas prices usually follow.
The employment picture has been improving since the beginning of the year, with a total of 768,000 jobs added since January. This momentum was carried through the month of April with the economy adding 244,000 jobs, the Labor Department reported Friday. April was the strongest month for business hiring since February 2006, and the job gains were distributed across multiple business sectors. In fact, 73% of the nation’s industries have added jobs in the last six months alone. That's the most broad-based job gain on record since 1998.
Last week finally gave us a break from the recent run-up in oil prices as crude tumbled 15% to its biggest weekly decline in more than two years. In just one week, light, sweet crude fell from a close of $113.93 to a close of $97.18 a barrel on the New York Mercantile Exchange. After nearing $114 a barrel as fears about supplies took hold following escalating violence in Libya, a close below $100 is more than welcome.
The 15% drop in oil prices revives hope that lower gas prices will follow. And while oil usually needs to hover in this price range for a couple weeks before gas prices will fall, some analysts are predicting that prices will drop to an average of $3.75 per gallon by Memorial Day, and $3.50 by mid-summer. Some areas of the country have already seen a decrease in prices. Nigel Gault, chief economist for IHS Global Insight was quoted by USA Today as saying that "If this sticks, it's worth about 20 cents off the price at the pump."
These are two areas of the economy that we have been watching closely, and it is nice to see these positive trends. If things continue moving in this direction, it will probably have a positive impact on the American financial system.
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