For nearly 60 straight days, drivers have seen a steady drop in gasoline prices — something that seemed unfathomable earlier in the summer when the average price nationally approached $5 a gallon.
The national average dipped below $4 Thursday for the first time since March, according to AAA, and the average price in Texas leads the country at $3.49 a gallon. As it stands now, an average 15-gallon fill-up in the Dallas metro costs just under $51 — down from over $70 at the worst of the price surge earlier this summer.
But noted gas price authorities Tom Kloza, global head of energy analysis for Dow Jones-owned Oil Price Information Service, and GasBuddy oil analyst Patrick De Haan believe the trend is approaching an end.
“I think the spiral is almost ending or may flatten a little bit,” Kloza said.
But why have prices been in a downward spiral for the last two months?
Crude oil is cheaper
Crude oil makes up 60% of the cost of a regular gallon of gasoline, and a barrel of it costs dramatically less than it did earlier this summer. West Texas Intermediate crude oil, the type extracted in the U.S., is down roughly $30 from its peak in June.
“If crude oil prices go back up, we’ll see gas prices go back up. If they continue to remain low, we’ll see gas prices lower than what we had seen in the early part of mid-June,” AAA Texas spokesman Daniel Armbruster said.
Drivers’ demand is down
The higher prices in gas throughout the summer were enough to keep many Americans from getting behind the wheel. AAA reported that 64% of Americans changed their driving habits, with 88% of that group saying they drove less. People still took their “great American road trip,” as Armbruster calls them, but the change in habits led to prices going down. The summer driving season usually ends after Labor Day weekend, which has the potential for continued relief at the pump.
“The banks said that: ‘Oh, we got to get to $6.20 to $6.60 [per gallon] to have demand destruction for gasoline.’ They don’t realize that what you pay at the pump in this country evokes a visceral reaction,” Kloza said.
Recessions fears still at play
Concern over a recession has been a reason for the price dip all summer. Investors in the oil market are concerned about a global economic slowdown for a number of reasons, including the Russian invasion of Ukraine and China’s COVID-19 responses. There’s been debate recently over whether or not a future recession is inevitable, but regardless of any contrasting forces at play between strong employment numbers and tighter monetary policy from the Federal Reserve, it’s been enough to cause a decrease in crude oil prices.
Little action from Putin
The actions of Russian president Vladimir Putin can upend the oil and gas market at any moment. But lately, Putin has not done anything to upset the supply of crude oil and refined products in the global market, Kloza said, and drivers have benefited.
Tapping the Strategic Petroleum Reserve
Kloza said some credit has to be given to tapping into the U.S. reserves, though President Joe Biden’s plan expires in October. Biden announced March 31 that he instructed the Strategic Petroleum Reserve to release roughly 1 million barrels of crude oil every day for six months.
The big question is whether Biden will pull another lever once October rolls around. The Organization of the Petroleum Exporting Countries is unlikely to up production, and Biden would need to make progress on his nuclear treaty with Iran to get more Iranian oil on the market, Armbruster said.
As is always the case in the oil market at this time of year, hurricane threats in the Gulf of Mexico loom large and can wreak havoc on refineries.
“For now, at least in the coming near days, we will see prices continue to drop on the retail level,” Armbruster said.
