Falling US fuel prices ease fears of recession

Conservation also is playing a role. American consumption of gasoline typically grows by more than 1 percent a year, Mr. Routt notes. This year's growth will be less than 1 percent, not keeping pace with a population that surpassed the 300 million milestone this week.

This represents a natural response of the marketplace to higher-priced oil in 2004 and beyond. It prods consumers to use less and gives suppliers an incentive to expand production.

All this has changed the mood of those who trade oil contracts on commodity markets. The price of oil has fallen from about $75 a barrel to $60 or lower in recent weeks.

Prices could still spike if supplies are disrupted in places like the Middle East, Iran, or Nigeria.

But the OPEC cartel is responding to the changed outlook. The Organization of Petroleum Exporting Countries meets Thursday in Qatar to formalize plans for a production cut of 1 million barrels a day.

It's not clear if the group will actually pull that much supply off world markets. Member nations aren't unanimous in their outlook, but backers of a cut don't want to let prices fall too far.

Routt sees oil prices staying relatively flat, but he wouldn't be surprised if gasoline dips below $2 as refiners shift to cheaper winter products.

Mr. Silvia's team of economists at Wachovia believe oil prices will remain around $60 a barrel early next year. He says gasoline is unlikely to fall to $2 a gallon from the current level of $2.23.

All this comes as the US economy is in a phase of adjustment. The Federal Reserve is trying to guide the economy into what economists call a soft landing, to restrain inflation without causing an outright economic slump.

It has raised interest rates incrementally since mid-2004 but is now sitting on the sidelines as the economy, and inflation, cools.

But soft landings aren't easy to achieve. The risk of recession has risen along with tighter monetary policy. To some economists, falling oil prices could be a symptom of that risk.

Merrill Lynch's David Rosenberg, in a recent report, notes oil prices fell 25 percent in the six months prior to the recession in 2001.

The price cut didn't prevent that recession, he says, because "the decline in crude was symptomatic of slower demand" in the economy.

Today the housing market that was driven by low interest rates has weakened. A gauge of industrial production, announced Tuesday, fell 0.6 percent in September, a much steeper dive than analysts expected.

US employers created a tepid 51,000 jobs in September, according to the Labor Department's initial tally two weeks ago.

Still, other economists believe the US economy remains on solid footing. Silvia's forecast is for moderate growth, with the question of recession hinging on the housing market. For now, he says, lower energy prices are giving an important boost to consumers.

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