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Lower Oil Price Helps Consumers But Market Volatility Remains

Prices are shown as Jaqueline Henderson pumps gas at a station in Portland, Ore., Friday, July 29, 2011

Prices are shown as Jaqueline Henderson pumps gas at a station in Portland, Ore., Friday, July 29, 2011

In recent months, crude oil prices have experienced their sharpest drop since the 2008 financial crisis, and now stand at around $80 a barrel.

Alongside one of the main highways leading into the U.S. capital, a European tourist is filling up his rental car at a gas station.

Fluctuating prices

Felix Braz believes that lower gasoline prices will be shortlived.

"Of course, it will go back up because the needs all over the world are growing," he said. "And the reserves they are not growing and it's not very difficult to understand that one day or another we'll get short of gasoline."

Braz is from Luxembourg, where the price is almost double that in the United States because of fuel taxes.

Another customer at the gas station is Jordanian-born Ahmed Al Hellu. He thinks gas in America is already too expensive.

"The other day I was talking to a friend in Qatar and he said the gallon is 75 cents, comparing to what we have here -- $3.99, almost $4.00 a gallon that's a difference you know. That's a pain in the pocket," he said.

Al Hellu runs an import business and says cheaper fuel would provide a much-needed break for him.

"Not only me. It will have a big impact on the whole country, because when the prices come down you have people transporting goods or things for their stores, the prices will come down, the wholesale will come down, the hotels, everything will come down, because everything is linked together," Hellu explained.

Since April, the price of a barrel of crude has dropped around $30. Economists say the price drop is linked to fears that a slower economy will lower demand for fuel.

Paul Isbell, an energy and climate expert at the Inter-American Dialogue in Washington, blames uncertainty in Washington and the recent downgrading of the U.S. credit rating.

"The main cause of this is the sudden kind of sense of incredulity at what's been happening in the United States," he notes.

But that's only the latest factor that has caused extreme price volatility, he says. In 2008, the price plummetted during the global financial crisis after peaking at nearly $150 a barrel. The tsunami in Japan and uprisings in the Middle East also have affected the oil price.

Isbell says price shocks hurt the poor the most and argues that European-style gasoline taxes can function as a tool that cushions the shocks while slowing climate change. He says governments can raise or lower the tax to compensate for price fluctuations.

"We have to stop thinking: High oil prices - bad; low oil prices - good," he said.

He says oil prices that are too low can have the effect of a tax break for consumers, but leave them vulnerable to a price shock down the road.