As a result, gas prices could fall below $3

Gas Prices on a Rollercoaster Ride

Gas prices have been providing a much-needed break for consumers, hinting at the possibility of nationwide averages dipping beneath the $3 per gallon mark.

The holiday season saw gas prices hitting rock-bottom, touching $3.10 per gallon, a figure not seen since May 2021 when the national average failed to sink below $3. Wednesday saw crude oil prices plummet by 4.1%, reaching a day's low of $69.11 per barrel - the lowest intra-day value since June 29. By the end of the day, oil prices had settled at $69.38 USD, marking a decrease. The internationally celebrated Brent oil benchmark also witnessed a dip, losing 3.8%.

Experts attribute this trend to a concoction of factors including China's concerns over weak demand, surging US exports, and disappointment with OPEC+'s decision last week.

Andy Lipow, president of Lipow Oil Associates, commented, "The market fell pretty fast. This could indeed mean that OPEC+ is losing its ability to control prices."

OPEC+ members agreed on production cuts last week; however, the legitimacy of this decision has been brought into question due to the voluntary nature of the move.

Libo voiced, "OPEC+ production cuts appear more form over substance."

For consumers, this news couldn't be more welcome. Even prior to midweek's oil price frenzy, the national average price for regular gas reached an 11-month low of $3.22 per gallon, drastically undercutting the September peak of $3.88 USD.

Lipow expects a drop of around 5 to 7 cents per gallon in the coming week, suggesting that potential developments in the Middle East or Venezuela's control over Guyana could potentially inflate oil prices, but it's becoming increasingly likely that US national gas prices will touch the $3 mark.

Robert Yawger, Mizuho Securities' vice president of energy futures, labelled this drop as a "crash." New US data revealed a substantial surge in weekly gasoline reserves, sparking concerns about the softening of energy demand, said Yawger.

Factors contributing to the recent descent in gas prices include:

1. Lower Crude Oil Prices: A significant dip in WTI crude oil prices has greatly impacted gas prices. Since July, WTI crude prices have slumped by about 11%, and nearly 40% since its 2022 peak.
2. Seasonal Trends: Consumer demand for gasoline wanes during the colder months, while the cheaper blend of gasoline available during this period prevents price surges until spring.
3. Refinery Capacity and Production: Predicted refinery capacity reduction by 2025-2026 and decreased crude oil prices offset each other. Moreover, enhanced refinery margins in 2025 due to wider crack spreads will contribute to lower gasoline prices.
4. Decreasing Gasoline Consumption: Gasoline consumption is projected to decrease in 2026 due to rising vehicle fleet efficiency and the increasing share of electric vehicles in the market.
5. Storage Levels: Increased gasoline stock levels, relative to the five-year average, have contributed to bearish factors in gas prices. However, this excess could pose a bearish risk if production intensifies and weakens the gasoline supply.

Future reductions in gas prices include:

• 2025: The US Energy Information Administration foresees a decline of around 3% in the national average gasoline price compared to 2024, predominantly due to lower crude oil prices.
• 2026: The EIA predicts a further decrease in the national average gasoline price of 6%, approximately 18 cents per gallon, due to lower crude oil prices and decreased gasoline consumption.

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.