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Gas at $3 per gallon could hurt U.S. economy

Petroleum analyst sees discretionary spending turn south if retail gas prices heat up too much.

By Daniel J. Graeber
Gas at $3 per gallon could hurt U.S. economy
The national average price for gas would need to hit $3 per gallon before there's real economic impacts for the United States, an analyst says. Photo by Bill Greenblatt/UPI | License Photo

April 13 (UPI) -- The U.S. national average price for a gallon of gasoline would need to move close to $3 before it starts having a negative economic impact, an analyst said.

U.S. retail gasoline prices have been on a steady increase for the better part of the year. Motor club AAA reports a national average price for a gallon of regular unleaded at $2.40 early Thursday, an increase of 15 percent, or 32 cents per gallon higher than this date last year. Over the course of a year, that difference could eat into savings or discretionary spending.

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Gasoline prices are tied to crude oil prices and the health of the nation's refinery infrastructure. Crude oil prices are up almost $5 per gallon from one month ago and gasoline prices have moved up 4.5 percent, or 10 cents per gallon, since the middle of March.

Crude oil prices are increasing in response to a decision from the Organization of Petroleum Exporting Countries to cap production levels in order to erase a glut of oil on the market and because of geopolitical tensions sparked by U.S. military action in Syria.

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The price for Brent crude oil, the global benchmark, was trading around $55.75 per barrel early Thursday, though Patrick DeHaan, a senior petroleum analyst with GasBuddy, said oil would have to move considerably higher before it starts having a direct impact on consumers in the way of high gas prices.

According to him, consumers in some parts of the country, like California, home to about 10 percent of total U.S. gasoline consumption, and big cities like Chicago and New York, are used to high gas prices and would likely have a muted reaction to gas above $3 per gallon. Other parts of the country where public transportation options are limited and gas prices are typically low will likely flinch.

"Once we'd see areas where gasoline prices are traditionally low -- South Carolina, Texas, Oklahoma -- then we'd likely see a hit to more of the middle class -- and in these areas where mass transit is more challenging, unlike other areas," DeHaan told UPI. "Then we'd see a more sizeable impact to consumer sentiment, and surely some slowdown in discretionary spending."

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By his estimates, the price of oil would have to reach $75 per barrel and the national average would be close to $3 per gallon before there's a direct impact on the economy.

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The U.S. government estimates Brent crude oil prices will average $54 per barrel for the year. The national average price for gas, meanwhile, is expected to peak at $2.46 per gallon during the summer and post a full-year average of $2.39 per gallon.

If government estimates are accurate, the average U.S. household would be spending about $200 more on gasoline than last year.

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