Why Are Gas Prices Going Down? How Low Will They Go?

What’s happening

Gas prices have continued to decline since reaching an all-time average high of $5.02 in mid-June.

Why it matters

Lower prices would help American households battle ongoing inflation.

A gallon of gas averaged about $4.47 nationwide on Wednesday, a healthy decline from the all-time high of $5.02 reached on June 14. That easing of pressure at the pump could continue toward $4 a gallon, according to White House energy advisor Amos Hochstein.

“We already have many gas stations around the country that are below $4,” Hochstein said Sunday on CBS News’ Face the Nation “This is the fastest decline rate that we’ve seen against a major increase of oil prices during a war in Europe where one of the parties in the war is the third largest producer in the world.”

Barring hurricanes, outages or other unforeseen disruptions, the national average should fall to $3.99 again by mid-August, Patrick De Haan, head of petroleum analysis at GasBuddy, predicted in a recent blog post.   

“So far, we’ve seen the national average drop for 34 straight days, with over 25,000 stations now back at $3.99 per gallon or less, and thousands more stations will join this week,” De Haan added. That’s heartening news for drivers, but still well above the $3.16 average motorists were paying a year ago.

Here’s what you need to know about gasoline prices, including where they might go next and what the White House is doing to keep them in check.

For more on the gas crisis, find out which states are holding gas tax holidays, which are issuing gas rebate checks and quick tips for saving money at the pump.

Why is gas so expensive?

Russia’s ongoing invasion of Ukraine is the obvious factor. According to the White House, the war raised gasoline prices by more than $1.70 per gallon at its peak. Even though the US doesn’t import much crude from Russia, oil is traded on a global market and any change affects prices all over the world.

But the Russian invasion isn’t the only factor: Even though demand is nearing pre-pandemic levels, producers are still hesitant to increase production.

“We’ve had a supply-and-demand imbalance for a while,” Troy Vincent, a senior market analyst at energy analysis firm DTN, told CNET. “And it will remain, regardless of whether this conflict goes away.”

President Joe Biden has also accused top oil companies of profiteering.

“Amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain,” Biden wrote in a June 15 letter to the heads of Exxon Mobil, Chevron, Shell and other companies.

A Washington, DC, gas station shows gas prices above $5 a gallon.

Predictions of $6 a gallon seem far less likely now than they did in May.

Win McNamee/Getty Images

How much will gas cost this summer?

Volatility in the market has made predicting gas prices a tricky proposition. In May, Natasha Kaneva, J.P. Morgan’s head of commodities research, predicted the price at the pump could jump to $6.20 a gallon by August.

By June 13, gasoline hit $5.02 a gallon — a record dollar amount, though still lower than the 2008 peak of $4.14 adjusted for inflation. But crossing the $6 threshold, or even the $5 limit again, seems far less likely today.

“If oil falls below $100 and stays there, we could see gas prices coming closer and closer to $4,” AAA Northeast’s Mark Schieldrop told the Boston Herald. “Assuming everything continues the way it’s been trending, we should be heading back to $4,” Schieldrop added, “and hopefully we break that $4 benchmark and get back into the [$3 dollar range].”

DeHaan expects several states will fall back under an average of $4 soon, the majority being in the south “but that could spread to more states in the weeks ahead.”

On Wednesday, South Carolina, Georgia and Texas were already under the $4 threshold. 

What is the Biden administration doing to lower gas prices? 

In June, Biden endorsed a three-month nationwide gas tax holiday. Individually, a half-dozen states have already suspended state gas taxes. 

In a letter, Biden also called on top oil companies to work with his administration to address reductions in production as well as “inventory, price, and refining capacity issues.”

He previously criticized them for sitting on over 12 million acres of federal land approved for drilling and 9,000 production permits, suggesting he wants oil companies to pay fines for letting leases go unused.

In March, the White House began releasing a million barrels of oil a day from the US Strategic Petroleum Reserve. The unprecedented withdrawal, expected to last for six months, could lower gasoline prices between 10 and 35 cents a gallon.

“It will lower the oil price a little and encourage more demand. But it is still a Band-Aid on a significant shortfall of supply,” Scott Sheffield, chief executive of Texas oil company Pioneer Natural Resources, told The New York Times.

In April, the Environmental Protection Agency approved year-round sales of E15 gasoline, a cheaper, higher-ethanol fuel. The impact will be modest, as only about 2,500 of the more than 100,000 gas stations nationwide sell the blend.

The US is also looking at getting energy products from other sources: Biden will be in Saudi Arabia this week, in part to encourage the kingdom to increase output. But it and other OPEC nations say they’re already pumping at full throttle.

Relief isn’t likely to come from outside OPEC, either: This year, major oil companies like Shell, BP and Exxon Mobil are expected to invest half of what they did in production a decade ago.

The Biden administration has been working to improve diplomatic relations with Venezuela, which has been banned from selling oil to the US since 2018. And the White House is negotiating another nuclear nonproliferation treaty with Iran, which could bring Iranian oil back onto the market.

How can drivers save at the pump?

You can cut down on nonessential trips and shop around for the best price, even crossing state lines if it’s convenient.

Apps like Gas Guru scan for the best gas prices in your region. Others, like FuelLog, track your car’s gas mileage and can help determine if it’s getting decent fuel economy. In addition, many gas station chains have loyalty programs, and credit cards have rewards programs that give cash back for gas purchases.

source: cnet.com