The cost of gas is dropping. Here’s why, and how long the lower prices might last.


Gasoline prices are falling so low that they’re putting real money back into drivers’ pockets, making a mockery of the past and providing an unexpected holiday gift.

Fuel is now as cheap as it was in February, shortly before Russia’s invasion of Ukraine sparked a global energy crisis. AAA said the average price of a gallon on Wednesday was $3.50, and gas price tracking firm GasBuddy said it could drop below $3 by Christmas. And all that relief probably helped drive strong shopping over the Thanksgiving weekend.

“People are finding that they can spend $50 to fill up their tank instead of $80,” said Emma Rasiel, an economics professor at Duke University. “It’s a big indicator for consumers on inflation. It’s one thing they can see, how much it’s gone up or down, because every week they need to fill up their car.”

But Rasiel warned that cheap fuel could also give consumers the wrong impression. The prices of some goods and services are very low, and there is no indication that this moment of cheap oil is pushing the prices of other goods down.

While the drop in prices at the tap helps fuel the holiday shopping market, it reflects the economic challenges facing consumers and businesses around the world. Prices are falling because demand for oil and gas is falling as countries approach recession, the spread of the coronavirus China is threatening a major economic downturn and drivers are cutting back on gas consumption as they try to save money to cover higher interest rates and market losses.

Concerns in the past that Russia’s oil curbs could lead to oil shortages and send prices higher by the end of the year have, meanwhile, given way to a faltering economy and financial markets.

“We’re heading into the European financial crisis and the US recession as people struggle with high interest rates and worry about their finances and savings,” said Ben Cahill, an energy security researcher at the Center for Strategic and International Studies. . “Add it all up and it creates a bleak picture of oil demand. The prices reflect that.”

Also Read :  EU leaders to discuss Ukraine, energy, economy in Prague summit - World

Also helping to keep prices low at the moment are some key US refineries that have restarted crude oil production after months of idle maintenance and repair work.

But the big thing is chaos in China. As its leaders signal that a new coronavirus shutdown is imminent, sparking protests across the country, the expected economic downturn has changed oil suppliers.

Inside Biden’s team, fixing oil prices

China alone accounted for 16 percent of the world’s oil last year, according to research firm Capital Economics, which says its oil purchases will drop by 1 million barrels a day in December as the coronavirus outbreak spreads. The effect of such a decline in oil markets around the world is significantly, reducing the price of Brent crude by about $10 a barrel, or more than 10 percent.

“As the number of cases of COVID increases in China and the threat of a lockdown increases, the key question is whether inflation will fall, freeing up the rest of the world,” Edward Gardner, chief economist at Capital Economics, wrote in a research note.

Although the rise in oil prices over the past several years has been a major contributor to inflation in the United States and other countries, lower oil prices are not doing much to stabilize the economy. Producers who rely on excess oil must see prices drop for several months before adjusting the cost of their products, experts say. And drivers in some parts of the country are benefiting more than others. Californians are still paying about $5 for a regular gallon.

Also Read :  US housing market 'going to get worse' as home sales, listings hit fresh low

“This is a well-coordinated drop in prices,” said Patrick De Haan, head of oil research at GasBuddy, noting that any number of political or economic events could push prices back up.

There are other big factors that keep the price down. The United States and Europe are negotiating on the price of Russian oil, to take effect on Monday. The plan is to allow Russian oil to continue to flow on international markets but at prices that reduce the profits the Kremlin can use to advance its military arsenal.

Such a price has never been set for a major oil-producing country, and threatens to trigger further instability. If the cap is set too low, as some European countries are pushing, Moscow could retaliate by cutting its supply, causing prices to rise around the world.

Another wild card is the OPEC Plus consortium of oil-producing countries, which meets next week to consider how much oil its members should continue to export in the coming months. The group may decide to reduce its output to raise prices.

“The OPEC meeting could be a skunk at a picnic,” said Andrew Gross, a spokesman for AAA. “Trying to imagine what they’ve done is difficult.”

How Joe Manchin’s change of heart could revive the US solar industry

That’s something that worries John Catmatidis, who owns hundreds of gas stations and refineries – but not because it would affect his oil business. When the businessman talks about gas prices, he focuses on what it could ultimately mean for another business in his multi-billion dollar real estate empire.

Rising borrowing costs have made the business more difficult. A six-month gas release of $3, he said, would help reduce inflation and signal that it is safe for the Federal Reserve to reduce its recent rate hikes.

“If we lower the rate and stay there, we can fix the inflation problem and the Fed can stop raising interest rates and get everybody fired,” Catmatidis said.

Also Read :  Global recession already underway Morgan Stanley strategist says

One thing that is clear is that there are a few leaders in Washington who would do anything to keep gas prices down. They are at the mercy of international markets.

The Biden administration may be pressuring Saudi Arabia, which controls OPEC Plus, not to cut production. But the administration’s indifference to such matters was evident the last time OPEC Plus met, in October, when the group ignored Washington’s request to increase output, instead cutting it by 2 million barrels a day.

The administration last week eased sanctions on Venezuela as part of an effort to get more oil out of the country. But it will be months before Venezuela’s oil is delivered, and only a modest amount will be available to begin with.

Many drivers pay little attention to the spread of the global fuel market. But even they are taking a cautious approach, even perhaps splurging on holiday gifts.

Data collected by AAA shows that they are still following the same driving habits that affected them when gas went up to $5 a gallon, making multiple trips in one car, driving slowly, and only filling their tanks. Prices may have come down, but drivers are not taking their foot off the brakes.

The data is also reflected in consumer sentiment, which generally improves when gas prices drop. But the University of Michigan Consumer Sentiment Index shows that cheap gas is being overshadowed by other economic problems plaguing Americans. Even as gas prices fell, a national survey showed, consumer anxiety grew in November.

“Even though gas prices have come down, prices for other things are still high,” said Joanne Hsu, who directs the university’s consumer research. “There is a great sense of uncertainty.”


Leave a Reply

Your email address will not be published.