Gasoline will average $2.94 in 2015, feds predict

Are low gas prices going to stick around for a while? The U.S. government thinks so.

The federal Energy Information Administration issued its monthly report on Thursday, and it predicts that gasoline will remain below $3 a gallon throughout 2015.

Specifically, gas prices will average $2.94 in the new year, 45 cents cheaper than this year. That will let consumers keep a total of about $61 million in their collective pockets.

According to AP:

That may not seem like a lot in the context of a $17.5 trillion U.S. economy, but economists say it matters because it immediately gives consumers more money to spend on other things. Consumer spending accounts for 70 percent of the U.S. economy.

“It would be a reversal of the trend over the last few years where consumers can’t stretch a dollar far enough,” says Tim Quinlan, an economist at Wells Fargo.

Quinlan says the price of gasoline is one of the three big drivers of consumer confidence, along with stock prices and the unemployment rate. “Lately all three are moving in the right direction,” he says.

Energy analyst Michael Lynch, writing in Forbes, acknowledges that “Some will scoff at the drastic change in the forecast, arguing that such a big revision cannot be credible, and that an economic recovery next year should bring higher prices.”

But analysts usually make predictions based on the current price of oil, and don’t predict wild swings one way or the other. However, increased global supply should keep prices down in 2015, according to Lynch’s own analysis:

A strong global economy next year, combined with slowing shale oil production growth and/or instability in Libyan production should tighten markets, but might not raise prices much, certainly not to $100 a barrel. And a diplomatic agreement with Iran that ends sanctions, combined with rising Iraqi and Kurdish production, will probably turn $80 into the new price ceiling. Longer run, I remain an outlier with a firm belief that even $80 a barrel cannot be sustained in the wake of rising global oil supply.