We could see gasoline and diesel fuel prices far lower in the near future. Exxon-Mobil (NYSE: XOM) CEO Rex Tillerson told CNBC’s Squawk Box show that he thinks oil prices could fall to $40 a barrel in the near future.
If that occurred, there would be a 43% drop in oil prices. This calculation was based on the price of Brent crude oil in the U.S., which was trading at $70.87 a barrel on December 2, 2014.
If it were passed on to consumers at the pump, $40 a barrel oil would translate into $1.58 a gallon gasoline. The average U.S. price for a gallon of gasoline in the U.S. was $2.78 on Dec. 1, 2014, according to the U.S. Energy Information Agency. Forty-three percent of $2.78 is around $1.20. Obviously, the price would vary widely between regions in the United States, but it would still be incredibly low.
Diesel drivers would also catch a big break as well; the average price of a gallon of diesel fuel could fall by $1.55. That means the cost would go from around $3.60 a gallon to $2.05 a gallon based on Energy Information Agency figures.
As you can see, the impact of this upon the economy and average Americans would be huge. Vast numbers of people would effectively get a pay increase, and businesses would get a boost to the bottom line. The cost of a wide variety of goods, ranging from food to appliances, could fall as transportation costs declined.
Obviously, there would be some negative effects, such as less sales tax to pay for road maintenance and a lot of oil field workers on the unemployment line. Companies like Tesla Motors (NASDAQ: TSLA), which markets electric cars, could be badly hurt. It could also create chaos overseas as governments in countries like Russia, Iran, and Venezuela, which depend on oil revenue to buy political support, collapse.
It also means people will be driving more and the roads will be more congested than ever. That means governments around the U.S. could be forced to limit driving in order to prevent gridlock. One strong possibility will be to restrict the number of cars that enter urban areas and to try to limit freeway driving.
Tillerson didn’t come out and directly predict super cheap oil, but he admitted it was a possibility. The CEO of the world’s largest oil company admitted that his organization is prepared to deal with oil prices as low as $40 a barrel.
Drivers, it seems, are about to catch an even bigger break. One wonders how much longer it will last.