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Lower gasoline prices fail to spur consumer spending

Tribune-Review
| Wednesday, November 26, 2014 12:01 a.m
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Justin Merriman | Trib Total Media
People pump gas at the Sunoco along Freeport Road in Aspinwall on Tuesday, November 25, 2014.
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Philip G. Pavely | Trib Total Media
A Bp gas station in Lawrenceville advertises the going rate for gas in Pittsburgh Monday, Nov. 24, 2014.
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Philip G. Pavely | Trib Total Media
A GetGo gas station in Lawrenceville advertises the going rate for gas in Pittsburgh Monday, Nov. 24, 2014.

The sight of Western Pennsylvania stations selling gasoline for less than $3 a gallon five weeks before Christmas should bring joy to the holiday.

For some people, it’s not enough to fuel a shopping binge.

“It’s meant I can put more gas in my truck because it was so expensive for so long,” Erick Williams, 43, of Brighton Heights said as he filled up at an Exxon station in the North Side. “In the next couple weeks, if it stays this way, maybe we’ll have some extra left over.”

“I’ll just save it,” said Lola Stevenson of Ross.

The money people save at the pump could go into retailers’ registers at this time of year. Pump prices below $3 per gallon could give consumers an extra $40 billion to spend during the holidays, according to Morgan Stanley.

But the forces driving oil to three-year lows — including what some see as a price war that Middle East countries declared on U.S. shale producers — are dampening early celebration.

A decision on Thanksgiving by the Organization of Petroleum Exporting Countries to cut production could reverse the price drop.

“Low prices sustained for six weeks is good, but it’s not long enough to change people’s comfort levels,” said Jeff Green a Phoenix-based retail consultant.

Airlines and other big fuel users such as FedEx and UPS likely are saving money, but customers won’t benefit much, analysts say.

“That price depends on competition, and there is no more,” said Bijan Vasigh, an airline industry expert and economics professor at Embry-Riddle Aeronautical University in Florida. “The average ticket is still high.”

The low fuel prices haven’t lasted long enough to bring a meaningful benefit to small businesses, Green and others say. A Reuters poll this month found almost two-thirds of respondents don’t anticipate spending more this holiday.

Cheaper gasoline won’t start to improve the economy until people decide to spend the extra money and retailers feel confident enough to invest it in growth, said Kurt Rankin, an economist and assistant vice president at PNC Financial Services Group.

“That money is simply not being put to use,” he said.

There are promising signs in Pennsylvania, where retail hiring in October increased at a rate not seen in four years.

“Our retailers may be hoping for a more sustained period of low gasoline prices. They seem to be hiring,” Rankin said.

OPEC could move to disrupt that.

The shale revolution pushed domestic crude oil production this month to above 9 million barrels a day for the first time in 30 years. The increase lessened OPEC’s grip on oil prices, though its members’ behavior can greatly affect the market even if the cartel no longer speaks and acts with one voice, analysts say.

Many think big members such as Saudi Arabia allowed prices to drop with the hope that lower prices would make shale drilling uneconomical.

“The tipping point really occurred Oct. 1 when Saudi Arabia cut prices to Asia. Immediately, Iraq and Iran followed suit,” said David Smith, senior vice president of the oil and gas management division of Farmers National Co. “Basically they declared a pricing war on the United States.”

Experts are split on whether OPEC will cut production to stabilize or increase prices when its members meet Thursday or allow prices to continue their tumble by ramping production or leaving it alone.

The specter of U.S. energy companies losing the price war fuels worries that the break consumers get at the pumps could end up harming the economy, analysts say.

“If we spend six to 12 months in that range, there will be cutbacks in drilling and layoffs would follow that,” Smith said.

David Conti is a Trib Total Media staff writer. Reach him at 412-388-5802 or dconti@tribweb.com.

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