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Oil prices plunge 20 percent over the weekend

Low gasoline prices are likely to go even lower

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Photo (c) Gerasimov174 - Getty Images
An oil price war and escalating fears of the coronavirus are creating a perfect economic storm that will likely have two short-term results that are beneficial to consumers -- falling gasoline prices and record low mortgage rates.

Saudi Arabia launched an oil price war over the weekend, slashing prices by 20 percent overnight. The move is aimed at driving out weaker competitors and came after OPEC was unable to reach a production agreement with Russia.

As a result, U.S. oil refiners will pay significantly less for crude oil at a time when they normally curtail operations for maintenance and boost the price of gasoline. Instead of rising gasoline prices this spring, consumers may find them going even lower.

“Just the third collapse in crude oil prices during my career. 2008, 2015 and now 2020,” GasBuddy’s Patrick DeHaan wrote in a Sunday tweet. “Truly a remarkably past few days- never did I anticipate my somewhat wild prediction 2 weeks ago of $25-$35/bbl WTI coming true.”

Gas stations may react to the lower oil prices this week. Today, the AAA Fuel Gauge Survey puts the national average price of regular gas at $2.38 a gallon, five cents less than a week ago and nine cents less than a year ago.

Blame the coronavirus

The coronavirus is the catalyst in all of this. Fears of the economic damage being caused by the disease caused a sharp drop in oil demand, prompting the Saudis to act. It’s also sending investors fleeing from the world’s stock market and into U.S. Treasury bonds.

The more investors buy bonds, the lower the yield goes. The 10-year bond started trading Monday offering a record low yield of 0.44 percent, with some market analysts predicting it could go to zero.

That, in turn, is sending mortgage rates lower. Just last week, Freddie Mac reported that the average rate on a 30-year fixed-rate mortgage had fallen to 3.29 percent, a record low. With bond yields still falling, home buyers and those refinancing existing mortgages could see even lower rates.

Long-term impact?

While consumers may enjoy lower fuel prices and mortgage rates in the short-term, the longer-term impact is less certain. The twin nose dives of the oil and bond yields have already taken a heavy toll on the value of stock portfolios. Most market-watchers agree that the stock market has farther to fall.

Meanwhile, more attention is being focused on the cause of all this turmoil -- the coronavirus, codenamed COVID-19. Public health officials in the U.S. and abroad continue to ramp up efforts to contain the outbreak, with now over 100,000 confirmed cases in the U.S.

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