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At the beginning of this year I commented on the rising price of gasoline and the possibility that demand and price would continue to increase. At that point, a gallon at the pump was just past USD 3.00 a gallon. Through the summer and into the fall, the price did continue to increase. For a few weeks, the price was more than USD 4.00 a gallon, and for a couple weeks in Atlanta, supply could not keep up with demand.

 

And then, quite rapidly, the price began to fall.

 

I never thought I’d see it again, but I paid less than USD 1.50 a gallon this past week when I filled the gas tank of my car. That’s about what it cost five years ago. Compared with the average price of just a couple months ago, that works out to an annual savings of about USD 1800 for me. For trucking companies, school districts, and others who use substantial amounts of petroleum, the savings could reach into hundreds of thousands or even millions of dollars.

 

Yet, I wish I could be happier about this swift decline in fuel cost. In part it signifies an adjustment to more rational price levels, but current prices seem to have fallen below the rational level to depths that echo something is wrong. That something, as we all know, is the troubled global economy.

 

When the price of gas was high, Americans began to put more importance on fuel economy, started reducing the number of miles they drove, and even tried alternative modes of transportation, such as bicycles and buses. Now that gas prices have dropped, Americans are still driving fewer miles, but that’s because a portion of them have been laid off and are no longer commuting to work, and they’ve cut back on travel to save money.

 

A secondary effect of lower gas prices and fewer miles being driven is a decline in highway improvement revenues. The less we drive, and the less it costs to drive, the less money states have to maintain aging bridges and repair roads.

 

A further effect is that the drive to develop more fuel efficient vehicles and alternative fuels and energy sources might lose momentum, and funding, if the price of gasoline remains low for an extended period.

 

Demand for oil likely will increase again, as will the price of oil, possibly by this time next year, assuming world economies are showing signs of recovery by then. And we trust they will. Current speculation is that we could see oil prices as low as USD 30 a barrel at the beginning of 2009, with an increase to USD 50-60 a barrel later in the year.

 

For many companies and many families, 2008 has been a particularly difficult year. As 2008 comes to an end, we at PaperMoney wish our readers a safe, happy, healthy, and prosperous New Year.  



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