While gasoline is selling well below $2 a gallon in many Iowa cities, the great news for motorists is cause for alarm for investors.
Markets around the globe are showing signs of weakness as crude oil dropped to $50 a barrel, half what it was a year ago.
Creighton University economist Ernie Goss says stock markets in Europe and Asia are reeling and Wall Street is reacting.
“Investors are saying, well, sooner or later, that economic slowdown is going to hit the U.S., so that’s being reflected in the markets with economic pullbacks,” Goss says. “We’re seeing that in all the markets, whether it’s the Dow, whether it’s the S&P or the NASDAQ.”
Some fear Russia’s petroleum-heavy economy is nearing a critical low, while Goss says the U.S. economy has seen a big shift over the past decade.
“We’ve gone from an economy, the U.S. economy, of exports of about 4% of GDP, gross domestic product, to about 16%,” Goss says. “So, if we have pullbacks in Russia, that means they’re going to be buying less of our goods. We’re already seeing that in Europe as they buy less of our goods and certainly Asia is another place where we’re seeing a real pullback in economic growth and that’s going to mean they’re buying less of our goods.”
Iowa is the nation’s #1 ethanol producer and Goss says the steady drop in gas prices is forcing ethanol to respond.
“Overall, ethanol will be hurt by this,” Goss says. “Of course, ethanol competes with gasoline and is a blend in gasoline. With corn prices up a bit over the last couple of months, this is going to put a squeeze on the profit margins of ethanol producers.”
AAA-Iowa reports gas prices in Iowa are averaging $2 a gallon, the lowest price since May of 2009, though cities like Des Moines and Davenport are in the $1.80s.