Could gas really drop to $2.50 a gallon?

Eve Troeh Feb 27, 2012

Kai Ryssdal: Today the TransCanada Corporation says it’s gonna go ahead with part of the controversial Keystone XL pipeline. The part that already has a regulatory green light will take oil from Oklahoma to Texas. It’s not going to change the oil supply any, but the already political pipeline is just another indicator of the election year curiosities of energy policy. Over the weekend Newt Gingrich stumped in front of signs that promised gas at $2 .50 a gallon.

From the Marketplace Sustainability Desk, Eve Troeh set about finding out exactly how that dream might come true.

Eve Troeh: Say you drive to work tomorrow and it’s real — gas is $2.50! The average driver would save about 20 bucks per tank, and over the course of a year…

Matthew Kahn: They’re gonna pick up somewhere between $750 and $1,000 in new money in their pocket.

Says UCLA economist Matthew Kahn. Double that if you’re a two-car household. But…

Kahn: I don’t think that that alone is going to lead them to jump start the economy.

Economist Paul Sullivan at the National Defense University says: if he woke up to $2.50 a gallon, he’d suspect government price controls, like the Nixon era.

Paul Sullivan: And that distortion is going to cause refineries to shut down, because they aren’t going to be making the profits.

Cheaper gas, but less of it — shortages, even. No one is talking price control on the campaign trail. They’re talking good old supply and demand. So when did the market last bless us with $2.50 gas?

Gregory Daco: Uh, was in mid-2009, during the trough of the recession.

Economist Gregory Daco as IHS Global Insight says prices fell because people lost jobs, didn’t drive as much.

Daco: If you have weak demand, you tend to have downward pressure on prices.

But who wants to wake up to that? Energy analyst Steve Levine has another quick route to $2.50 a gallon.

Steve Levine: Um… the whole city of Los Angeles and New York stop driving.

Hm. Well. Levine says: the reality is no one president can get gas down to $2.50, really. It’s just an idea planted in voters’ consciousness.

I’m Eve Troeh for Marketplace.

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