Why Are Gas Prices Plummeting?

MILL VALLEY, CA - JULY 22: A customer prepares to pump gas into his truck at a Valero gas station on July 22, 2013 in Mill Valley, California. According to AAA, the national average price for a gallon of regular gasoline rose to $3.67 as prices have surged 12 cents in the past week due in part to the unrest in Egypt and production disruptions at US refineries. (Photo by Justin Sullivan/Getty Images)
National Journal
Clare Foran
Add to Briefcase
See more stories about...
Clare Foran
Oct. 3, 2013, 4:42 p.m.

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.”

What We're Following See More »
INTERVIEW THIS WEEK
Trump Still Considering Yellen For Fed
5 hours ago
THE LATEST

"President Donald Trump plans to formally interview Janet Yellen this week about potentially staying on as Federal Reserve chair, two people familiar with the matter said...Many Republicans on Capitol Hill want Trump to move on from Yellen, whose first term ends in February, and choose a more traditionally conservative Fed chair."

Source:
NOMINEE FOR ONDCP
Trump Noncommittal on Marino
5 hours ago
THE DETAILS
IN LIGHT OF 60 MINUTES REVELATIONS
Manchin Asks Trump to Drop Marino’s Nomination for Drug Czar
7 hours ago
THE LATEST
WOULD OVERTURN MARINO LEGISLATION ON DRUG DISTRIBUTORS
McCaskill Will Introduce Bill in Response to “60 Minutes” Scoop
7 hours ago
THE DETAILS

In the wake of Sunday's blockbuster 60 Minutes/Washington Post report on opioid regulation and enforcement, Sen. Claire McCaskill (D-MO) has introduced legislation that "would repeal a 2016 law that hampered the Drug Enforcement Administration’s ability to regulate opioid distributors it suspects of misconduct." In a statement, McCaskill said: “Media reports indicate that this law has significantly affected the government’s ability to crack down on opioid distributors that are failing to meet their obligations and endangering our communities."

Source:
MCDONNELL PRECEDENT DOESN’T GET HIM OFF THE HOOK … YET
Judge Refuses to Dismiss Charges Against Menendez
7 hours ago
THE LATEST

"The judge overseeing in U.S. Sen. Bob Menendez’s case says he won’t dismiss any charges against the New Jersey Democrat. Judge William Walls ruled against defense lawyers’ arguments that the charges should be dropped because they didn’t meet a narrower definition of bribery under a 2016 U.S. Supreme Court ruling that reversed the conviction of Republican former Virginia Gov. Bob McDonnell."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login