5 ways low gas prices can hurt

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Gas prices have dropped sharply, with America enjoying a historic oil boom. After years of getting walloped at the pump, drivers suddenly have extra cash to spend, and that's great for the national economy.

People aren't saving that extra money, economists say. Instead, they're buying more gifts for the holidays and planning bigger vacations, pumping more money back into the economy. Forecasters at PNC Financial Services Group estimate that tumbling gas prices will put $39 billion in extra cash into holiday shoppers' budgets this year compared to 2013. That's expected to add more juice to the economic recovery heading into 2015.

Oil prices fell below $75 last week to the lowest levels in four years, a drop largely due to the sharp rise in U.S. production in recent years. The country's shale boom is on track to produce 9.4 million barrels a day next year, the highest levels since 1972.

Gas prices usually track the oil markets, and have nearly been in a freefall as a result. The national average for gas fell below $3 a gallon earlier this month, the lowest level in four years, and is projected to fall to $2.80 a gallon in December. The average price in 2013 was $3.51 a gallon.

Yet while cheaper gas may be making Americans merry this Christmas, it isn't necessarily a long-term blessing. Read on for five reasons that falling gas prices may be a concern.

Global growth is slowing

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Gas prices aren't falling only because of the surging supply of oil. Demand is slumping as well because of a downshift in the global economy, particularly in countries that are teetering on the brink of a financial crisis.

Japan, which has seen its economy shrink for months, is now in an unexpected recession. That's raising concerns about Asia as a whole. The International Energy Agency has cut its forecast for oil demand growth, mostly due to a weaker outlook for Europe and China.

Oil problems are contagious

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Rock-bottom oil prices are wreaking havoc in some oil-producing countries, particularly those that are heavily dependent on exports to survive. In Venezuela, for example, the government loses $700 million a year for every $1 slide in the price of oil. The country has resorted to borrowing money from Wall Street to make up for the difference.

In Russia, oil's slide along with Western sanctions has contributed to a 30 percent drop in the ruble against the dollar this year. The country's central bank has forecast zero growth and 8 percent inflation for next year.

These countries aren't islands. In today's global economy, their problems spread far beyond their borders, putting the world's fragile economic recovery at risk.

U.S. oil industry faces cost pressures

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A lot of attention lately is being paid to the break-even price in the oil industry. That's the price of oil at which drillers start to lose money on their operations.

It's more expensive to drill shale oil than conventional oil, and analysts have pegged the break-even price for U.S. drillers at $60 to $75 a barrel. So while U.S. drillers can tolerate lower oil and gas prices, their profits decline as prices slide. Companies won't spend as much on their operations, and some may consolidate.

More important for consumers, as oil prices slide, domestic producers have already started shutting down some of their rigs. If that trend accelerates, a decrease in oil supply could send gas prices back up again.

Deflation worries mount

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The U.S. economy has been getting stronger lately, while inflation remains modest. It's a heady brew for investors, and one reason the stock market has been on fire.

Analysts say inflation could hold steady at around 1.5 percent for the next year. But if gas prices continue to fall and the U.S. economy gets hit with the sluggishness plaguing the rest of the world, that could trigger a spiral of falling prices known as deflation.

Falling prices sounds great to consumers, but that also brings declining values for homes, businesses and investments. The recovery, and especially the job market, would suffer. Think of Japan's "lost decade" (or decades, actually) on a much larger scale.

Return of the gas guzzler

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As gas prices began climbing after the recession, car buyers took more interest in hybrids, electrics and other fuel-efficient vehicles. Now that prices have tanked, gas guzzlers are back in style.

Sales of the Lincoln Navigator, an eight-passenger SUV, rose by 38 percent in October, and sales of the Chevrolet Tahoe rose 6 percent. Pickup trucks also saw a spike in sales.

The hybrids that were all the rage a few years ago are being left on car lots. Ford's C-Max hybrid saw a sales plunge of more than 22 percent last month. Toyota saw Prius sales slide more than 13 percent.

Shares of electric-car maker Tesla Motors (TSLA) have fallen about 11 percent since early September. The company is trying to maintain sales momentum by tweaking its leasing program. Analysts estimate that Tesla may have already saturated the early-adopter market for its vehicles and now needs to prove itself to a more skeptical audience. If gas prices remain low, that audience will be even harder to appeal to in the future.

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