Cheap Gas Is Good News But May Signal Economic Woes

Signs outside more and more gas stations nationwide are broadcasting gas for under $3 a gallon.

In Connecticut, the Citgo station at 407 Berlin Turnpike in Newington dropped its price to $2.96 a gallon on Tuesday. That is $.03 lower than the station was selling gas on Monday.  The Citgo station at 107 Berlin Turnpike in Berlin also dropped its price to $2.96 on Tuesday.

Whatever relief the price drop spells for drivers, it could also signal economic troubles ahead.

The nationwide average for a gallon of regular was just under $3.19 on Tuesday, down 9 cents from a week earlier, according to AAA.

It's much lower than that in many places. A full 30 percent of gas stations nationwide are selling gas for less than $3 a gallon, and prices are still falling, the motor club says.

But the plunge reflects ongoing weakness in the global economy, and some of the factors behind the drop could affect the U.S. economy beyond Big Oil's bottom line, experts told The Associated Press.

Prices are dropping just as demand drops, and production booms, worldwide, and as the robust U.S. dollar remains at a four-year high against other currencies, the AP reported.

In the U.S., domestic oil production is higher than it's been in decades. The boom, bolstered by drilling in North Dakota, has been encouraged by high prices thus far. Too steep of a price drop could discourage it if production ceases to be profitable.

Prices haven't fallen that far yet, but they're expected to keep dropping, barring a global economic turnaround or a production cut by OPEC.

It's unclear what OPEC might do next to reverse the trend. Leaders of the group of oil-producing nations are split, the New York Times reported on Monday. Venezuela and Iran are calling for action to reverse the drop, while some Gulf states, notably Saudi Arabia, are choosing to allow prices to fall while they work to shore up their market share in the face of ramped-up U.S. production, according to the Times.

And while the domestic production boom can help insulate the U.S. economy against the vagaries of the global markets, especially given instability in the Middle East, the U.S. could have a hard time exporting its oil products.

That's because the relative strength of the dollar makes U.S. oil costlier than oil from elsewhere. The dollar's strength could in turn threaten export levels, suppress the domestic oil economy and job growth and even tamp down global oil demand.

What that means for gas prices is unclear, at least until OPEC takes action. In the meantime, analysts say the average U.S. price for a gallon of regular could fall below $3 by the end of the year — potentially making for a relatively inexpensive holiday travel season.

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