MARK-TO-MARKET: Gas prices decline, but for the wrong reason
Falling gas prices have been a welcome relief to inflation-weary consumers. According to the U.S. Energy Information Administration, the national average for a gallon of regular gas is $3.22. This
Falling gas prices have been a welcome relief to inflation-weary consumers. According to the U.S. Energy Information Administration, the national average for a gallon of regular gas is $3.22. However, today's average price is still 27% ($0.68) higher than when President Biden took office.Diesel fuel, which powers much of America's trucking and transportation industry, remains stubbornly high. Diesel prices also peaked in June, reaching $5.81 a gallon, a record high. Hawaii has, for the moment, replaced perennial No. 1 California for the woeful distinction of having the highest average price in the nation. Rounding out the Top 5 are California ($4.44), Nevada ($3.99), Washington ($3.90) and Alaska ($3.75). The blue-ribbon winner for the cheapest gallon of gas goes to Georgia ($2.83) followed by Texas ($2.89). In Illinois, the average price for a gallon of regular gas is $3.39 -- the 13th-highest state in the nation. In Chicago, the average price surges to $3.83 per gallon.Iowa ranks No. Here in the Quad-Cities, a gallon of regular gas on the Illinois side averages $3.34, while the Iowa side is $0.20 cheaper at $3.14 per gallon.Falling energy prices have been the key driver in the recent decline in inflation. In June, the national rate of inflation reached a high of 9.1%. In a recent study by Moody's Analytics, a 7.1% inflation rate is costing the average American household an extra $396 per month, or $4,752 a year, in higher costs. Moreover, the ultimate goal is to return to a target rate of just 2%. A barrel of crude oil is ultimately refined into its many distillate products. Most crude oil (44%) is turned into gasoline. Crude oil prices soared from a potent combination of reduced U.S. production and global sanctions against Russia's crude oil exports. Today, however, a barrel of WTI has fallen to around $74.The reason behind the abrupt decline in crude oil prices, however, is cause for concern. The International Monetary Fund (IMF) has also downgraded its forecast for global economic growth in 2023. The European Union, a key cog within the global economy, is also expected to enter a punishing recession.Reduced global economic activity translates to a reduced global demand for energy, including crude oil, natural gas and gasoline. Consumers and businesses buy fewer goods and services. Reduced demand for energy inherently drives energy-related prices lower.In the short-term, cheaper gasoline prices have been a welcomed respite for American consumers. In the longer-term, however, it represents a cautionary outlook for the U.S. Quad-Cities Investment Group LLC is a registered investment adviser with the U.S. Securities Exchange Commission.