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 »
STARTS LEGAL FUND FOR WH STAFF
Trump to Begin Covering His Own Legal Bills
21 hours ago
THE DETAILS
DISCUSSED THE MATTER FOR A NEW BOOK
Steele Says Follow the Money
22 hours ago
STAFF PICKS

"Christopher Steele, the former British intelligence officer who wrote the explosive dossier alleging ties between Donald Trump and Russia," says in a new book by The Guardian's Luke Harding that "Trump's land and hotel deals with Russians needed to be examined. ... Steele did not go into further detail, Harding said, but seemed to be referring to a 2008 home sale to the Russian oligarch Dmitry Rybolovlev. Richard Dearlove, who headed the UK foreign-intelligence unit MI6 between 1999 and 2004, said in April that Trump borrowed money from Russia for his business during the 2008 financial crisis."

Source:
BRITISH PUBLICIST CONNECTED TO TRUMP TOWER MEETING
Goldstone Ready to Meet with Mueller’s Team
23 hours ago
THE LATEST

"The British publicist who helped set up the fateful meeting between Donald Trump Jr. and a group of Russians at Trump Tower in June 2016 is ready to meet with Special Prosecutor Robert Mueller's office, according to several people familiar with the matter. Rob Goldstone has been living in Bangkok, Thailand, but has been communicating with Mueller's office through his lawyer, said a source close to Goldstone."

Source:
SPEAKING ON RUSSIAN STATE TV
Kislyak Says Trump Campaign Contacts Too Numerous to List
23 hours ago
THE LATEST

"Russian Ambassador Sergey Kislyak said on Wednesday that it would take him more than 20 minutes to name all of the Trump officials he's met with or spoken to on the phone. ... Kislyak made the remarks in a sprawling interview with Russia-1, a popular state-owned Russian television channel."

Source:
“BLOWING A SURE THING”
Sabato Moves Alabama to “Lean Democrat”
1 days ago
WHY WE CARE
×
×

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