Gasoline prices are seasonal—we all know that. They rise from mid-winter into the summer and fade in the fall when summer driving ends. Also, gas refiners typically use cheaper materials to make fuel during cooler months.
Prices are fading in a big way right now, and odds are that most American motorists will be paying less than $3 a gallon soon, maybe by the end of October.
And $2.50 isn't out of the question — and maybe lower in some parts of the country.
Here's why.
West Texas Intermediate, the benchmark U.S. crude, finished down 4.3% to $65.75 a barrel, the lowest close since August 2021. It's down 19.4% in the third quarter and 8.2% this year. A new, lower oil demand projection from the Organization of Petroleum Exporting Countries set off the rout.
Related: When you can expect gas prices to be under $3
Crude oil currently accounts for about half the price of a gallon of gasoline.
GasBuddy.com puts the national average retail price of gasoline at $3.248 a gallon, while the American Automobile Association's daily Gas Prices report puts the average at $3.26.
AAA's price is off 42 cents, or 11.4%, since it peaked at $3.679 on April 19. GasBuddy's price peaked at $3.70 a day later. The peak came early and was a surprise: Early this year, industry observers had speculated that the average might hit $5 this summer.
Some states already see sub-$3 gasoline prices
Both organizations agree that 11 states already enjoy prices under $3: Alabama, Arkansas, Kansas, Kentucky, Louisiana, Missouri, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas. North Carolina's average price is right at $3.
Mississippi has the lowest statewide average now at about $2.75.
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It's not a stretch to believe the national average will be under $3 a gallon in a month. Based on current trends, the date would be around Oct. 14.
The price has been above $3 for 1,217 straight days.
Tom Kloza, global head of energy analysis at Oil Price Information Service, sees prices falling "a penny a day over the next 30 days." A national average under $3 may well hit by Oct. 3.
How about $2.50? That's doable, too, based on price history in 2022 and 2023. Kloza agrees, seeing $2.50 by Election Day, Nov. 5.
Could some communities see $2 gas? Maybe—but only in states with the lowest gasoline prices now, such as Mississippi. Texas, Louisiana, and Oklahoma are also candidates.
When were U.S. prices last under $2? Between March 31, 2020, and June 5, 2020.
What could derail the cheap gasoline price trend
Some things have to break right for the $2.50/gallon scenario to work.
- Weather
- Geopolitics (especially the Middle East)
- OPEC, the Organization of Petroleum Exporting Countries.
Storms can potentially cause the most problems and keep prices higher than many expect.
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Tropical Storm Francine has formed in the southern Gulf of Mexico and is expected to become Hurricane Francine on Tuesday.
It will hit primarily the central Louisiana coast, probably on Wednesday. Oil production in the vast network of offshore wells in the Gulf of Mexico is starting to be shut in.
The storm may cause outages in the refinery network along the coast. About 48% of the total U.S. refinery capacity is located along the Gulf Coast.
Energy stocks slumped Tuesday as traders ignored the storm and crude oil lower.
The Energy Select Sector SPDR fund (XLE) fell 1.7% to $85.14. It's down 14% from its 52-week high of $98.97.
Right now, the storm is expected to come ashore as a Category 2 hurricane, which means winds can top 100 mph (161 kmh). But that doesn't appear catastrophic for oil traders, who have pushed crude oil prices below $70 a barrel as of early Tuesday. So gas prices may continue to fall despite the hurricane.
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OPEC is a problem because its members want the highest oil prices possible to make the most money.
OPEC can sort of control prices; the problem is that it has little power to punish members who break the rules. Many OPEC members are willing to bend prices to ensure their production is sold.
And OPEC has competition: The U.S. is currently the world's No. 1 oil producer.
Weak economies are depressing price pressure
In addition, OPEC cannot control demand. The economies of some big consuming countries, such as China, are soft, and too much oil is available on global markets to keep prices up.
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Lastly, the steadily rising availability of electric vehicles is cutting gasoline demand.
Bottom line: The trend for gasoline is lower. Average prices nationally will probably fall under $3.
That does not mean all states will see prices drop below $3. Oregon, Idaho, Nevada, and Alaska average prices are above $3.60. Prices in California (particularly due to taxes and special gas-formulation rules), Washington, and Hawaii are still above $4. But residents there will see lower prices, too.
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