The price of gas in the United States hit 47 cents a gallon on Sunday at one station in the state of Michigan.

For global translation, $0.47 USD a gallon is the equivalent of €0.11 Euros per liter of gasoline. Yes, that price is LOW.

The only word for this price is: INSANE. It was not that long ago that the United States saw gas prices consistently over 4 dollars. Like this gas sign from 2011:

Image: Wikimedia: Daniel Christensen

This means that by one measure the price of gas has fallen by over 80% in the last 4 years.  What is happening? Has the global economy lost its mind?

Short answer to that question is no, though there is an argument that the owners of three gas stations in Michigan have, but that’s a different matter.

The longer answer is more complicated. For drivers in Michigan, this is good news. But overall...well, let’s dive into the facts.

What just happened in Michigan?

It seems the most important factor here is a good old fashioned price war. It appears that three gas stations in the town of Houghton Lake, Michigan have been competing intensely and the outcome is this incredibly low price.

If you’re looking for a silver lining in classic capitalism this is it.  But the reality is, these gas stations could only fight this low in their respective prices if the national price was pretty low.

The National Situation:

The average cost of gas at the pump in the US is currently $1.889 USD per gallon (Notably more than 3 times the amount being charged at the gas station in Michigan). For the non-US audience, that’s about €0.49 Euros per liter.

This price is 17 cents lower than last year’s average of $2.061 per gallon. That is a nearly 10% drop in the price at the pump, which is a lot but not that out of the ordinary year-on-year.

Still, anything around or under $2 USD per gallon is a huge change from just 5 years ago when prices often hovered above $4 USD a gallon.

The Price of Oil:

Globally, the price of oil per barrel has been dropping. Early 2015 saw a historic drop in prices from over $100 USD a barrel to about $45 dollars a barrel in March, 2015. Prices did stabilize back up to about $60 USD a barrel, but that is still pretty darn cheap.

The reasons behind this include: record output by Saudi Arabia, the prospect of oil coming from Iran now that the nuclear deal has been implemented,  and the immense – nearly 80% – rise of domestic oil production in the United States (one of the world’s largest consumers).

The result of all of this new oil is that price per barrel has fallen rapidly over the last year.

Is this good or bad news?  Uh….Yes….

This is a tough question to answer. The facts about what is driving lower prices are a lot clearer than the facts telling us to celebrate or worry.  To answer this let’s look at the good news first:

The good news:

1) It costs a WHOLE LOT LESS to fill up your car and drive places

2) The cost of travelling to your job, the store, or to vacation within the United States is falling (excluding what SHOULD be happening to aviation prices but isn’t), meaning you can buy stuff or put some money away for retirement (ok, ok, stop laughing).

3) Low gas prices could add up to $400 billion USD being pumped into the US economy, adding hundreds of thousands of jobs through increased consumption.

4) Low prices of oil make companies less likely to take risky (and potentially environmentally damaging) “exploration efforts.” Basically, low prices can delay new drilling for years, something that fans of the environment should enjoy.

5) Delays in new drilling or tar sands exploration will give alternative energies more time to develop and prove themselves to be truly equal alternatives to oil.

6) Lower prices make discussions about oil consumption taxes possible (which would lower the amount of consumption, see next section on the bad news to understand the value of this type of taxes).

The bad news:

1) The economic boom from cheaper oil has not appeared. Goldman Sachs has estimated the downturn in oil investment cut half a percentage point of economic growth off of the US economy.

2) The oil industry is losing jobs at an accelerating rate. Jobs in the US increased in early 2015 with about 208,000 new jobs a month, but that was slower than the second half of 2014 which saw jobs increase about 281,000 a month. In shale oil heavy states like Texas, Oklahoma, North Dakota, Wyoming and New Mexico the loss of jobs in that industry has resulted in lower local consumption and thus loss of jobs in other industries.

3) Lower gas prices reduce the economic incentive to research and invest in alternative energies (this is where that gasoline tax could help balance the incentive, while raising substantial revenue).

4) Lower gas prices mean potentially more gas consumption, which means more pollution released into the air. Arguably, oil consumption in the US is relatively inelastic (translation: fixed at a certain amount and not changed much by price), so this negative aspect may not be as bad as you’d think, but it’s still a concern.

5) Lower gas prices mean shipping prices may fall, which by some estimates may increase the pace of US offshoring jobs, as the falling cost of shipping goods long distance no longer offsets the benefits of cheaper labor in other countries. Though (as with most of this) not all analysts agree.

6) The huge fall of oil prices could indicate a broader problem in the economy. Jeffrey Snider, the head of global investment research at Alhambra Partners told NPR:

"Whenever you see oil prices collapse, especially by something like 60 percent, something else is going on, and so therefore, any benefit that might come to consumers in the form of lower energy prices is being overwhelmed by whatever it is that's causing oil to fall in the first place,"

So….really is this good news or bad news?

If you’re a consumer it’s good news. If you’re in the oil industry, it’s probably bad news. If you’re an environmentalist (and what good global citizen isn’t?), then…. you’ll have to wait and see.

What’s next?

Typically with economic analysis NO ONE KNOWS. Seriously. Google “future of oil prices” and you get about as many people predicting doom and gloom as people celebrating. There are a whole slew of analysts saying that $5 USD a gallon is just around the corner (as they were incorrectly saying at the start of 2015) as there are people saying that $1 USD a gallon will be the norm for the foreseeable future.

And finally: Why does this matter?

Well, first it matters to you if you drive a car, ride in a gasoline (or diesel) powered form of transport or live on the planet (pollution affects ALL of us if you haven’t noticed). But second, this is also a global question in terms of development.

Low gas prices can open up the possibility of car ownership and personal travel to a new group of people who were previously unable to afford it. This group could thrive with access to new transportation opportunities but they could also choke the world in smog, as is being seen in China and India.

Oil has become so integral to the lives of every person on the planet that wild changes in its price can raise or lower the fortunes of vast amounts of people. Nations who rely on oil exports to fuel their own development suffer when the price drops, but individuals who struggle to afford their daily commute suffer when the price goes up.

There’s also the matter of the world needing to move to fossil fuel-free economies.

Oil is one of those items that needs to be watched. Its impacts need to be understood and planned for. Otherwise, the world’s most vulnerable will be hurt by the swings up and down in prices.

Enjoy your $0.47 cents a gallon Michigan. The rest of us will try to figure out if this is good or bad for the world.

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Defeat Poverty

47 cent gas! The good and the bad news

By Brandon Blackburn-Dwyer