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Why Are Gas Prices Plummeting? Why Are Gas Prices Plummeting?

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Energy

Why Are Gas Prices Plummeting?

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Motorists are getting some welcome relief at the pump this fall.(Justin Sullivan/Getty Images)

Last year, rising gas prices in February and March fueled a political firestorm ahead of the presidential election, with Republicans blaming President Obama for the price hike. Now, however, with midterm elections over a year away, plummeting prices have failed to attract political attention.

The national average gas price showed its sharpest decline in nearly a year, falling 5.4 percent in September, and it's still dropping. On Thursday, the U.S. national average was $3.38 for a gallon of gas, according to AAA analysts, and prices are estimated to decrease by an additional 25 cents per gallon through December. At this time last year, the U.S. national average was 40 cents higher, at $3.78 a gallon.

 

A number of factors have spurred the decline, including the seasonal shift to cheaper fuel blends at the end of the summer driving season, decreased likelihood of U.S. intervention in Syria, and booming domestic oil production.

"Consumer demand is at its highest in the summer, when folks take vacations. In the cooler months, kids are back in school, people go back to work full time, and there's less of an opportunity for recreational consumption," said Tom Kloza, chief oil analyst for GasBuddy.com, a gas pricing and information website.

Gas costs typically decline in the fall for another cyclical reason as well—a switch to cheaper blends of gasoline.

 

To keep smog under control, the Environmental Protection Agency mandates the use of cleaner-burning gas during the summer. Those requirements don't hold over into the winter months. So-called winter blends of gasoline are less expensive, and the savings are passed on to the consumer.

"If you think of gasoline like a cake, there's a lot of cheap flour that you can use in the winter that you can't use in the summer because it leads to higher emissions," said Patrick DeHaan, a senior petroleum analyst with GasBuddy.com. "Once you get past September 15, it gets a lot cheaper to bake the cake."

Circumstances not tied to seasonal events are also pushing prices lower.

The cost of oil has begun to decline now that U.S. military intervention in Syria seems less likely. This, in turn, is contributing to lower prices at the pump.

 

"Syria doesn't produce much in the way of oil, but the possible consequences of a U.S. strike could have threatened other areas of the Middle East where oil is produced. Since oil is traded on a global market, this affects the price of oil everywhere," said Michael Green, a spokesman for AAA. "This has a lot to do with the risk premium. Whenever there's increased risk of something happening to disrupt the oil supply, that raises the price of oil."

Gas prices have also declined due to a surge in domestic oil production in areas like North Dakota's Bakken Formation. Refineries across the U.S. are also running more smoothly this year than last, which saw Hurricane Sandy cause temporary shutdowns at a number of East Coast refineries.

For all these reasons, analysts predict the price of gas will continue to fall in the coming weeks. "You always have to be careful when predicting prices," Green said. "But most consumers will pay a good deal less at the pump barring a major hurricane, renewed tensions in the Middle East, or significant refinery failures."

This article appears in the October 4, 2013 edition of NJ Daily.

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