Lower Gas Prices A Bad Thing?

I was filling up my truck this weekend, and I looked at the prices and saw that it cost me a little over $30 to fill up my truck.  Back at the peak, it used to cost me over $90 to fill up.  I have to admit, it felt cheap to me.  Now, I argued for months when gasoline was peaking that it wasn’t really expensive, it was just that gas was cheap for so many years and it was catching up in a fast way.  Everyone thought it was expensive because of the rate of change.  I had a graph on this blog several months ago that showed gas expenditures as a percentage of total household expenses.  It was high but not much higher than normal.  It had just been extremely low for years.  So, why would I be complaining about $30 to fill up my truck? 

I think this drop has happened so fast that everyone believes gas is cheap.  It feels cheap.  When things feel cheap, people buy them.  That’s my concern with low gasoline prices.  The demand will pick up too fast.  Now, don’t get me wrong.  These low prices came just in the nick of time.  If gas prices were $4.50 per gallon, the economy would be struggling even more and the market probably would still be plummeting.  But, because it feels cheap now, I think there’s a chance we could see oil & gas change direction and go up pretty quickly, especially with the geo political seen heating up.  Remember, it took a few years for gasoline to get to $4.50 but only a few months for it to drop back down to $1.50.  I still think that all the alternative energy solutions will be implemented over the next few years.  But, the gasoline prices moving back and forth so much are like a big pendulum.  Extremely high gas prices caused everyone to cut back and choked off demand.  I’m afraid we’ll see prices so low that demand will pick up too much because everyone will want to drive instead of fly for example.  The driving season would have been much worse if gas was $4.50 per gallon.

I want low gas prices just like the next guy.  But, when they drop this fast, it’s reason for concern.  I don’t think these prices will last that long.  I’m in favor of lower prices but not plummeting prices.  Sounds like what I want out of the dollar.


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January 2009
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