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How low can they go?
We’re talking gas prices here.
Plummeting gasoline prices over the past couple of months are expected to remain low through at least the spring, signaling generally good fortunes for the nation’s economy, said Purdue University energy economist Wally Tyner.
The national average price for regular unleaded gasoline was $2.61 per gallon as of Dec. 12. That is 59 cents lower than a year ago. Indiana prices were averaging about $2.52, and prices in the Lafayette area were even lower, averaging $2.32.
How much more prices will fall is difficult to predict; it will depend on the cost of a barrel of crude oil. Running about $105 for the past couple of years, it was below $59 last week.
“And it is likely to go even lower,” Tyner said. “On balance, this decrease in gasoline prices is quite good for the economy.”
He noted that crude oil prices have fallen $45 over the past few months – enough to increase the U.S. gross domestic product about 1 percent. That is significant considering the GDP – the value of the nation’s goods and services – is increasing by a rate of 3 percent annually.
“That’s a huge boost to the economy,” Tyner said. “It is providing consumers extra income they can spend on other goods and services, which stimulates the economy.”
On the other hand, Tyner said crude oil prices have fallen to the point that the oil industry, including exploration companies, will be cutting their investment budgets for 2015, likely leading to some job losses in that industry. Still, he expects that refining will continue to be profitable.
Gasoline prices have been falling primarily for several reasons:
“So it is the combination of slow growth in demand and the rapid growth in supply that has led to the current plunge in oil and gasoline prices,” Tyner said.
The wild card to gasoline prices always is the element of the unforeseen, such as an unexpected interruption of supply from a disaster or world events. Tyner said there is no planned maintenance at refineries that would reduce output for the rest of 2014.
Source: Keith Robinson and Wally Tyner, Purdue University
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