After a 123 straight day slide gasoline prices are up a little bit over the past few weeks. But, it's tough to complain about gas prices these days as the average American is paying $1.11 less per gallon this year than at the same time last year. Overall, the slide in gas prices saved American consumers $14 billion last year, or about $50 per person. Those savings are expected to balloon this year to more than $200 per person.
While that might not sound like a lot, it is roughly $500 per family, or about 20% less than the average American family spent on gas last year. That is money that we could be using to go out to eat more often or splurging on something nice. However, so far Americans aren't splurging with their "gas tax break" as some are calling it. Nor are they saving that money for a rainy day. Instead, Americans are spending their savings at the pump right back at the pump as we've started to ease the brakes we'd put on driving by heading out a bit more often. Surprised? Don't be. Falling gas prices have always caused Americans to drive more.
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Photo credit:Flickr user Riza Nugraha.
Fill 'er upLower gas prices tends to create more demand for gasoline. It's known as a demand response and economists have found that for every 10% the price of oil declines it creates additional global demand for oil to the tune of 300,000 barrels per day. With the price of oil down about 50% that suggests 1.5 million barrels of incremental demand for oil, or about 1.6% of global oil supplies. Interestingly, this just happens to be the current amount the oil market is oversupplied at the moment, which caused the price of oil to plunge in the first place.
This demand response comes as consumers put in more miles behind the wheel creating demand for additional gasoline volumes. It is a response that is being seen by gasoline shippers, which are seeing robust demand growth for gasoline being shipped via pipelines. In the West Coast, for example, a pipeline system owned by energy infrastructure giant Kinder Morgan saw 4.4% growth in the volume of gasoline being shipped on its system. Its COO Steve Kean said that the company believed it to be, "a sign of economic improvement in the markets we serve, and also, in part, perhaps the beginning of a demand response to lower prices." Said another way, drivers are enjoying low gas prices by spending more time in their cars.
It's not just gas prices, jobs are driving the demand tooOne of the reasons why Americans as a whole are driving more is because more Americans have jobs this year. The economy added 3.1 million new jobs last year with more than half of those jobs coming toward the end of last year as the economy started to accelerate. This translates into millions of additional daily commuters hitting the roads every day, which led to more miles being driven and more gasoline consumed.
The combination of having a job, or getting a better one, along with lower gas prices is a real confidence booster for many Americans. That consumer confidence has encouraged more Americans to look for a better ride to work by trading in their older vehicle. However, what's interesting is what these Americans are buying. Because gas prices are cheap, American's aren't as focused on fuel efficiency as they'd been in the past. Instead, we're seeing more Americans buy that new truck or SUV they've always wanted.
2014 Ford Explorer. Source: Ford.
General Motors , for example, saw its truck and crossover sales surge 42% this January over last year's sales. Some of this had to do with the release of its new Colorado, but it's far from the only automaker that saw a double-digit gain in truck sales as Ford had its best January for truck sales in a decade as sales for its F-Series were up 17%. Meanwhile, Explorer sales surged 28% while its more fuel efficient Edge sales actually dropped 19%. Clearly, Americans plan to take advantage of the cheap gas prices by driving the gas guzzler they've always wanted to drive.
TakeawayAs long as the price of oil stays where it is Americans will save hundreds of dollars at the pump this year. But, because of an improving economy most of that savings will just be pumped back into our vehicles. Some will use it for a longer commute to a higher paying job, while others will be driving a shiny new, but less fuel efficient vehicle. Bottom line, Americans plan to spend their windfall at the pump right back where it came from.
The article Youll Never Guess Where the Average American is Spending Their Savings at the Pump originally appeared on Fool.com.
Matt DiLallo has the following options: long January 2016 $10 calls on Ford, short May 2015 $15 puts on Ford, short January 2016 $32.5 puts on Kinder Morgan, and long January 2016 $32.5 calls on Kinder Morgan. The Motley Fool recommends Ford, General Motors, and Kinder Morgan. The Motley Fool owns shares of Ford and Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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