Gas Prices Rolling Down the Highway
Recent gas sales have been music to consumers' ears, hinting at nationwide gas prices potentially dipping below $3 per gallon.
Gas prices hit rock bottom around Christmas time, reaching 3.10 USD per gallon, a benchmark not seen since May 2021 when the national average failed to slip under the $3 mark.
Crude oil prices dropped by 4.1% on Wednesday, taking a nosedive to 69.11 USD per barrel - the lowest intra-day value since June 29. The oil price concluded the day at 69.38 USD, a decrease. The internationally renowned Brent oil benchmark also took a tumble, shedding 3.8%.
Analysts attribute this sale to a mix of factors, such as China's cause for worry about weak demand, bumper US exports, and disappointment over OPEC+'s decision last week.
Andy Lipow, president of Lipow Oil Associates, noted, "The market fell pretty fast. This could indeed mean that OPEC+ is losing its ability to control prices."
Last week, OPEC+ members agreed on production cuts. However, this arrangement was called into question due to the voluntary nature of the move.
Libo argued, "OPEC+ production cuts appear more form over substance."
For consumers, this news couldn't be more delightful. Even before the midweek oil sales frenzy, the national average price for regular gas - according to AAA - had plummeted, as of last week, to 3.22 USD per gallon. This marked a 11-month low and significantly undercut the September peak of 3.88 USD.
Lipow predicts additional drops in gas prices in the coming week by 5 to 7 cents per gallon, suggesting that new unrest in the Middle East or Venezuela's takeover of Guyana could potentially inflate oil prices, but it's becoming increasingly likely that US national gas prices will hit the $3 mark.
Robert Yawger, Mizuho Securities' vice president of energy futures, termed this outburst as a "crash." New US data revealed a substantial surge in weekly gasoline reserves, sparking concerns about the softening of energy demand, said Yawger.
Enrichment Insights:
Several contributing factors have played a crucial role in the recent plummet of gas prices in the United States:
- Lower Crude Oil Prices: The substantial drop in WTI crude oil prices has significantly influenced gas prices. Since July, WTI crude prices have declined by about 11%, and nearly 40% since its 2022 peak[1].
- Seasonal Trends: During the colder months, consumer demand for gasoline is notably lower, and the cheaper blend of gasoline to manufacture wards off price hikes until spring[1].
- Refinery Capacity and Production: Even though refinery capacity is predicted to decrease by 2025-2026, reduced crude oil prices balance things out. Moreover, increased refinery margins in 2025 due to wider crack spreads (the difference between wholesale gasoline prices and crude oil prices) contribute to lower gasoline prices[2].
- Decreasing Gasoline Consumption: Gasoline consumption is projected to decrease in 2026 due to rising vehicle fleet efficiency, including the rising share of electric vehicles and improved fuel economy in conventional internal combustion engines[2].
- Storage Levels: Elevated levels of gasoline stocks, relative to the five-year average, have played a role in bearish factors in gas prices. However, this excess also poses a bearish risk if production increases and the gasoline supply weakens[3].
Predictions for further reductions in gas prices include:
- 2025: The US Energy Information Administration (EIA) anticipates a decline of 11 cents per gallon (or approximately 3%) in the national average gasoline price compared to 2024. This decrease principally stems from lower crude oil prices[2].
- 2026: The EIA forecasts an additional 18 cents per gallon decrease (around 6%) in 2026, mainly due to lower crude oil prices and decreased gasoline consumption[2].
These predictions suggest that while gas prices might remain above $3 per gallon in 2025, they will continue to trend downward due to a combination of these factors.
