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 »
THE PLAN ALL ALONG?
Manchin Drops Objections, Clearing Way for Spending Deal
4 hours ago
THE LATEST

"The Senate standstill over a stopgap spending bill appeared headed toward a resolution on Friday night. Senators who were holding up the measure said votes are expected later in the evening. West Virginia Democrat Joe Manchin had raised objections to the continuing resolution because it did not include a full year's extension of retired coal miners' health benefits," but Manchin "said he and other coal state Democrats agreed with Senate Democratic leaders during a caucus meeting Thursday that they would not block the continuing resolution, but rather use the shutdown threat as a way to highlight the health care and pension needs of the miners."

Source:
UNCLEAR WHAT CAUSED CHANGE OF HEART
Giuliani Out of Running For State
7 hours ago
BREAKING

Donald Trump transition team announced Friday afternoon that top supporter Rudy Giuliani has taken himself out of the running to be in Trump's cabinet, though CNN previously reported that it was Trump who informed the former New York City mayor that he would not be receiving a slot. While the field had seemingly been narrowed last week, it appears to be wide open once again, with ExxonMobil CEO Rex Tillerson the current favorite.

Source:
BEGINS AT MIDNIGHT ABSENT SENATE ACTION
Feds Begin Prepping for Government Shutdown
8 hours ago
THE LATEST

Given the Senate's inaction on the continuing budget resolution (so far), the White House "said it has begun to work with agencies to prepare for the possibility of a large swath of the federal workforce being furloughed without pay beginning at midnight." Even if a shutdown occurs, however, "Senate procedures will allow the chamber to approve the CR with only a handful of Democrats in support by Sunday morning. Of the roughly 900,000 federal employees who were subject to furloughs in agencies’ most recent calculations, most would not be materially impacted as they do not work on weekends."

Source:
ALSO VICE-CHAIR OF TRUMP’S TRANSITION TEAM
Trump Taps Rep. McMorris Rodgers for Interior Secretary
12 hours ago
BREAKING
SHUTDOWN LOOMING
House Approves Spending Bill
1 days ago
BREAKING

The House has completed it's business for 2016 by passing a spending bill which will keep the government funded through April 28. The final vote tally was 326-96. The bill's standing in the Senate is a bit tenuous at the moment, as a trio of Democratic Senators have pledged to block the bill unless coal miners get a permanent extension on retirement and health benefits. The government runs out of money on Friday night.

×
×

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