The cost of gas is dropping. Here’s why, and how long the lower prices might last.


The price of gasoline is dropping so fast that it’s starting to put real money back into drivers’ pockets, defying forecasts and providing an unexpected gift for the holidays.

Fuel is now as cheap as it was in February, just before Russia’s invasion of Ukraine sparked a global energy crisis. AAA reported the national average price for a gallon of regular Wednesday was $3.50, and gas price tracking company GasBuddy predicted it could drop below $3 by Christmas. And all that help probably helped drive strong shopping over the Thanksgiving weekend.

“People realize they can go back to spending $50 to fill their tank instead of $80,” said Emma Rasiel, an economics professor at Duke University. “It is a key signal for consumers about rising prices. It’s another thing they can follow, no matter how much it goes down or down, because every week they have to fill up their car.”

But Rasiel warned that cheap gas could give consumers the wrong impression. The prices of some goods and services are not very volatile, and there is no indication that this moment of affordable fuel is driving up the cost of other goods.

Even as the drop in prices at the pump helps with the nation’s holiday shopping, it is a sign of the financial difficulties that consumers and businesses are facing around the world. Prices are falling because demand for oil and gas is falling as countries brace for recession, coronavirus outbreak in China they threaten a major financial crisis and drivers have cut back on gas-guzzling as they try to save money to pay mortgage payments and stock market losses.

Earlier worries that sanctions on Russian oil would create a supply shortage and send prices soaring toward the end of the year have, for now, at least, given way to an ailing economy and volatile financial markets.

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“We’re looking at a major recession in Europe and a further recession in the US as people struggle with high interest rates and worry about their wealth and savings,” said Ben Cahill, an energy security analyst at the Center for Strategic and International Studies. . “Add it all up and it creates a bleak picture of oil demand. The prices reflect that. “

Also helping to keep prices low for now are some major US refineries that have returned to churning out gasoline after months out of commission for repairs and maintenance.

But the biggest thing is the unrest in China. As its leaders signal that a new coronavirus shutdown is imminent, affecting protests across the country, the expected economic collapse has turned oil traders.

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China alone accounted for 16 percent of global oil demand last year, according to research firm Capital Economics, which projected its oil imports fell by 1 million barrels a day in December as the coronavirus spread. The result of such a decline in world oil markets apparently, lowering the price of Brent crude by up to $10 per barrel, or more than 10 percent.

“With cases of COVID rising to record highs in China and the threat of widespread shutdowns there increasing, the key question is how much demand can drop, freeing up global supply,” Edward Gardner, an economist at Capital Economics, wrote in a research note.

While high gasoline prices for much of the past year have been the cause of more inflation in the United States and other countries, lower gasoline prices are doing little to stabilize the economy. Producers who depend on high fuel prices need to see stable low prices for months before they can adjust the cost of the products they sell, analysts say. And drivers in some parts of the country benefit more than others. Californians still pay an average of nearly $5 per gallon of regular.

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“This is a pretty tight price drop,” said Patrick De Haan, head of petroleum analysis at GasBuddy, noting that any number of political or economic events could send prices back up.

There are other major factors that cloud the price picture. The United States and Europe are negotiating the price of Russian oil, to start on Monday. The plan is to allow Russian oil to continue to enter world markets but at prices that reduce the profits that the Kremlin can use to maintain its war machine.

Such a price has never been set in a major oil-producing country, and threatens to spark further instability. If the cap is set too low, as some European countries are advocating, Moscow could retaliate by cutting off its supply, triggering global inflation.

Another wild card is the OPEC Plus consortium of oil-producing nations, which meets next week to determine how much oil its members should continue supplying in the coming months. A group may decide to reduce its output in order to raise prices.

“The OPEC meeting could be the skunk at the picnic,” said Andrew Gross, a spokesman for AAA. “Trying to predict what they’re going to do is difficult.”

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Those are concerns for John Catsimatidis, who owns hundreds of gas stations and refineries — but not because they could affect his fuel business. When a businessman talks about gas prices, he is more focused on what could ultimately be said about another business in his multi-billion dollar empire, which is focused on land development.

Rising borrowing costs have made this business more challenging. The six-month extension of $3 gas, he said, could help reduce inflation and signal that it is safe for the Federal Reserve to lower the rate of inflation recently.

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“If we get the price down and it stays there, we can fix the inflation problem and the Fed can stop raising interest rates and putting everyone out of business,” said Catsimatidis.

One thing that is clear is that there are few leaders in Washington who can do to keep gas prices low. They are at the mercy of global markets.

The Biden administration is probably pressuring Saudi Arabia, which dominates OPEC Plus, not to cut its production. But the lack of regulatory influence on such matters was evident the last time OPEC Plus met, in October, when the group rejected Washington’s request to raise production, instead cutting it by 2 million barrels a day.

The administration last week eased sanctions on Venezuela as part of getting the country’s oil back. But it will take several months before Venezuela’s petroleum is shipped, and only small amounts will be available at first.

Most operators pay little attention to the wider dynamics of the global oil market. But they also take a cautious approach, even though they probably splurge on holiday gifts.

Data collected by AAA suggests they stick to conservative driving habits accepted when gas goes above $5 a gallon, doing more errands on one-car trips, driving at slower speeds, and partially filling their gas tanks. Prices may have dropped, but drivers are not taking their foot off the brake.

That much is clear from consumer sentiment, which tends to improve when gas prices drop. But the University of Michigan Consumer Sentiment Index suggests that this affordability of gas is overshadowed by other financial challenges weighing on Americans. Despite gas prices falling, a national survey shows, consumer anxiety increased in November.

“Even though gas prices have come down, prices for other things are still high,” said Joanne Hsu, who leads the university’s consumer research. “There is a sense of great uncertainty.”


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