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1 cent drop per gallon of gas = $1.4 billion to stimulate US economy


David R. Kotok, Chairman and Chief Investment Officer of Cumberland Advisors Inc. shared some market commentary over the weekend in light of what is potentially happening in Libya. There is conjecture that a regime change will lead to an increase in oil production and futures traders taking the price of oil down in the near future due to increased supply.

What does this have to do with the price of tea in China? A better question to ask is what does this have to do with the price of gas in the US. Kotok estimates that one penny per gallon of gasoline is roughly equal to $1.4 billion based on current consumption rates in the US. A $1 drop in the price of a gallon of gas would therefore equal roughly $140 billion in money freed up to spend elsewhere. Of course if gas dropped that much, people who were cutting back on buying fuel would perhaps drive a bit more, but nonetheless we’d still be looking at a significant stimulus to the US economy.

So who’s gonna short oil on Monday now? lol

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About Preet

Preet Banerjee is a Canadian personal finance commentator. He is a television host for The Oprah Winfrey Network, a Money Expert for The W Network, a personal finance columnist for The Globe and Mail, and a regular panellist on CBC's The National with Peter Mansbridge. He also appears frequently as a guest commentator on a variety of other programs and media.