Gas Price Slide Will Boost Bay Area Consumer Spending

January 13, 2015 By

January 11, 2015

by Pete Carey, San Jose Mercury News

Bay Area drivers are already celebrating the recent collapse in oil prices, but if it lasts it will have broader economic implications, putting billions of dollars a year directly into the wallets of residents and helping to stimulate the region’s already robust economy.

And a lot of that money is expected to end up in the cash registers of the region’s retail businesses, experts on the Bay Area’s economy say.

“Some of that will be spent at the mall, or Costco or whatever,” said David Shulman of the UCLA Anderson Forecast. “The real beneficiary is going to be retail.”

For Tracy City Councilwoman Nancy Young, who commutes to Pleasanton every day, the extra cash is going toward groceries.

“I fill up for less than $40, where my car would take almost $100 before. It’s a big thing, and I’m loving it.”

Oil prices have plummeted to about $50 a barrel since they peaked above $115 in June, as petroleum from hydraulic fracturing flows onto the market from U.S. wells. In the face of that increased supply, major oil producer Saudi Arabia has kept its production up, creating a glut on the world market.

Based on the state Board of Equalization’s data for sales — largely for gasoline — by service stations in the East Bay, San Francisco, the Peninsula and the South Bay, the region would pocket roughly $2.5 billion dollars a year from a 30 percent drop in the price of gasoline.

That has a huge impact for low- and middle-income people, for whom the price drop is “overwhelmingly positive,” said UC Berkeley energy expert Severin Borenstein.

And unlike Southern California, the Bay Area is an oil consumer rather than a producer, minimizing any job losses from the collapse of oil prices, said Stephen Levy of the Center for Continuing Study of the California Economy.

“Everybody shouldn’t go out and say we are going have $2.50-$2.75 gas forever, but for now it’s spendable money,” Levy said.

Experts are divided about how long the low prices will last — estimates range from months to years. David Hackett, president of energy consulting firm Stillwater Associates in Irvine, said he expects oil to stabilize at $70 a barrel “plus or minus $10” for the next two years.

The price drop also means more money for truck companies such as Mike O’Brien Specialized Hauling in San Francisco and Benicia, whose dozen tractor trailers take nearly 100 gallons a fill-up and get about 2 miles per gallon. “It drops right to the bottom line,” said dispatcher David Mustin, who added that he’s saving $60 a month on his own daily 23-mile commute.

It’s also good news for mass transit. The Livermore Amador Valley Transportation Authority is saving 35 percent, or about $10,000 a month, on its fuel costs, according to spokesman Dennis Mochon. The Santa Clara Valley Transportation Authority has saved about $200,000 on diesel fuel and $40,000 to $60,000 on gasoline since Dec. 1, according to spokeswoman Colleen Valles. She said ridership has been constant.

But the good cheer is spread unevenly. The average fuel efficiency of new cars sold last month dropped, according to a University of Michigan website that tracks new car sales by EPA mileage ratings.

While boosting sales of SUVs and light trucks, the low gas prices are “very bad news for alternative energy sources for transportation” such as hybrids and electric vehicles, said UC’s Borenstein. “They’re trying to keep a stiff upper lip, but the fact is people buy them to try to save money.”

But Marina Cerin-Stith of Scotts Valley, a Nissan Leaf driver and director of programs for a Bay Area Leaf owners’ group, says she’s buying electric vehicles no matter what gas is selling for.

“If gas prices were as low back in 2011 (when she bought her Leaf) we would have gotten an EV regardless — you can’t beat the cost of electricity and convenience of refueling your vehicle at home,” she said.

California’s environment won’t suffer much from increased fuel consumption now that a cap-and-trade law on carbon emissions is in place, said James Sweeney, a professor of engineering and director of the Precourt Energy Efficiency Center at Stanford University. Sweeney chairs the state’s Petroleum Market Advisory Committee, which was formed in September to monitor the effects of fuel price swings on consumers.

Predictions that gas prices would spike because of the state’s new cap-and-trade law have so far failed to materialize, as an estimated 10-cents-per-gallon increase was swallowed as California gasoline prices fell by more than $1 over the year to $2.62 for regular.

The Bay Area’s five refineries should see a short-term boost to their profits because price drops at the pump lag behind a drop in the price of oil, said energy consultant Hackett. But that reverses when oil goes up. “They’ll make some money now, but won’t make as much money later, and it’ll all average out,” he said.

The region’s solar power companies may face some headwinds.

“Solar on the roof may be a harder sell,” said Charles Kolstad, an economics professor and senior fellow in energy and environmental economics at the Stanford Institute for Economic Policy Research, in states that use oil to produce electricity, unlike California.

To be sure, oil is one of the most volatile commodities on the planet, so there is no long-term guarantee of low prices.

“Believe it or not, it was almost $10 dollars a barrel in the mid ’90s,” said Stanford’s Kolstad. “Right now, we’re swooning over $50 a barrel.”

Contact the author of this article, Pete Carey, at 408-920-5419. Follow him on

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