Oil plunge puts spending money in buyer pockets

NEW YORK -- The plunge in oil prices this week could give homeowners a few extra hundred dollars to burn this year and cause large corporations to rethink their energy budgets. All totaled up, that could lead to a fair-sized dent in the U.S. trade deficit.

Economists and corporate financial officers stood at attention as crude oil futures prices plunged to the their lowest level in nearly a decade, a falloff of 35 percent since November. Increased output, the falloff in demand from crisis-stricken Southeast Asia and mild winters in Europe and the United States are causing the price drop.

On Tuesday, April crude fell 7 cents to $13.21 a barrel on the New York Mercantile Exchange, after falling 78 cents, or 5.5 percent on Monday. The closing prices on Tuesday was the lowest since Oct. 24, 1988. Crude oil fell as low as $12.80 a barrel in intra-day trading, also the lowest since October, 1988. "Odds are, they (prices) are going to stay depressed all year," said Ed Yardeni, chief economist at C.J. Lawrence Inc. "That's a big tax cut for the economy ... (leaving) more money to spend on other goods and services. It's almost an immediate impact. As soon as you see prices coming down on gas pumps, that's an immediate windfall for consumers." Yardeni said that the "other big impact here is bringing inflation down to zero" and seeing homeowners continue refinancing their mortgages as interest rates extend their fall. As inflation falls, Yardeni said, the average consumer will have an extra $10 a month in his or her pocket, the average homeowner will have $25 extra and the homeowner who refinances the mortgage will have $100 a month extra. "That's pretty much locked in. I'm not surprised by this drop," Yardeni said. Lawrence Chimerine, chief economist at the Economic Strategy Institute, said if consumers are paying less for goods, "a lot less money goes out of the country. It's one of the few bright spots in our trade picture." Last week, the Commerce Department reported that America's current account deficit widened by 12.3 percent to $166.4 billion in 1997. That was the second-worst imbalance since World War II. Chimerine estimated that the United States spent $57 billion last year on imported oil. That figure could fall to $50 billion in the calendar year, he said. "People tend to spend that on something else, so it's very stimulative to the economy," Chimerine said in a telephone interview from Brussels. Industry already had been rethinking its budgets in light of falling prices and negligible inflation. But this week's plunge hit the spot. "My fuel guy reacted very positively," said an understated John Bromley, spokesman for Union Pacific Railroad, which uses 3.5 million gallons of diesel fuel a day, making Union Pacific the largest domestic user of diesel after the U.S. Navy. At American Airlines in Houston, smiles also were the order of the day. "Essentially, every penny of the jet fuel price impacts our bottom line up or down by $30 million" on an annual basis, said Chris Chiames, an American spokesman. Fuel is the industry's second-largest expense after labor; last year, Chiames said, American spent $1.9 billion on jet fuel.

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