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Economic relief rides on the cost of fuel

Emilio Casoria of Baldwin fills up his tank

Emilio Casoria of Baldwin fills up his tank at the Shamrock gas station in Baldwin in Oct. 8, 2014. U.S. consumers saved billions of dollars at the pump in 2014. Photo Credit: Newsday / Alejandra Villa

Since the summer, one of the biggest categories of the inflation calculation has plummeted precipitously.

The combination of the U.S. shale boom and weakening Chinese and European demand has pushed down oil prices roughly 30 percent since June.

Putting aside the political and environmental arguments, fracking -- extracting oil and gas from rock by injecting high-pressure mixtures of water, sand or gravel and chemicals-- has helped to boost U.S. oil independence.

The Energy Information Agency said that U.S. oil production reached about 8.7 million barrels per day in September, the highest monthly production since July 1986. The agency is also forecasting that production will average 9.5 million barrels per day next year, which would be the most since 1970.

The increase in production and the subsequent fall in oil prices has put an end to fears of "peak oil" -- the theory that global oil production had peaked and as a result, prices would shoot up to $200 a barrel and the cost at the pump would top $10 per gallon.

According to the International Energy Association (nwsdy.li/iea), lower energy prices are likely to continue into the first half of next year. Short of a geopolitical flare-up, the association believes that we are entering "a new chapter in the history of the oil markets."

Separately, the U.S. government cut its forecast for global oil prices next year by $18 a barrel to $83. Because the price of crude oil accounts for two-thirds of the price of gas, prices at the pumps have also cratered. The U.S. Energy Information Administration (nwsdy.li/eia) notes that a $1-per-barrel change in the price of crude oil translates into a change of about 2.4 cents per gallon of gasoline.

The drop in energy prices is expected to help consumers save $61 billion on gas this year. 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 gives consumers more money to spend on other things, such as the holiday shopping season.

Before we get too far ahead of ourselves with visions of sugar plum fairies and the like, you may wonder if there is a downside to the drop in oil prices.

A recent Sanford C. Bernstein report noted that oil at $80 a barrel would make one-third of U.S. shale oil production uneconomical, according to Bloomberg. If that's the case, there is a fear that states such as Texas and North Dakota, which, combined, account for about half of the nation's oil production (nwsdy.li/crudeoil), could take a hit to their energy-dependent economies.

But any pullback on the local level is likely to be outweighed by a more general increase in global economic growth.

Meanwhile, the fall in energy prices arrives at a welcome time.

According to PricewaterhouseCoopers' Health Research Institute, overall medical costs are expected to rise 6.8 percent next year (nwsdy.li/pwchealth).

But the increase is more significant for seniors, who spend more than 10 percent of their budgets on health care. A National Council on Aging fact sheet indicates that the average senior in good health spends about $381 per month on basic health needs (nwsdy.li/agefact). This includes Medicare premiums, supplemental coverage, copays and out-of-pocket costs. The amount increases to $511 per month for a senior in poor health. The figures were reported in 2012 by the Gerontology Institute, University of Massachusetts, Boston.

While everyone is happy about the fall in energy prices, older Americans, especially those who are living on fixed incomes, are likely to feel the most relief.

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