Gas prices hit 3-month lows, but high fuel costs could be here for the long haul. here’s why

What is happening

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

why is it important

Gasoline prices are still $1.45 higher per gallon than a year ago, and lower prices would help American households fight inflation.

The price of a gallon of unleaded fell to $4.60 on Thursday, down sharply from an all-time high of $5.01 hit in mid-June. That brought relief to motorists, but experts say they don’t expect an imminent return to $3.15 a gallon, the average a year ago.

Fuel prices are tied to the cost of oil — crude is responsible for more than half the cost of retail gasoline, according to the Energy Information Administration. The price of crude fell below $100 a barrel this month for the first time since April. On July 12, West Texas Intermediate, a US benchmark, was $96.48.

But the overall imbalance of supply and demand suggests high prices will be the norm for some time. The price of crude has already fallen 13% in the United States this month, while gas is only down by half.

“The world has never witnessed an energy crisis of such depth and complexity,” Fatih Birol of the International Energy Agency told the Sydney Energy Forum on July 12, the report reported. Australian Financial Review. “We may not have seen the worst yet – it affects the whole world.”

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

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

Why have gasoline prices dropped recently?

Reduced demand is a major factor: according to new data from the Energy Information Administration, gas demand fell last week from 9.41 million barrels per day to 8.06 million, while national inventories totals increased by 5.8 trillion barrels.

So why is gas still so expensive?

Russia’s continued invasion of Ukraine is the obvious factor. According to the White House, the war drove gasoline prices up more than $1.70 a gallon at its peak. Although the United States does not import a lot of crude from Russia, oil is traded on a global market and any changes affect prices all over the world.

But the Russian invasion is not the only factor: even though demand is approaching pre-pandemic levels, producers are still reluctant to increase production.

“We’ve had an imbalance between supply and demand for some time,” Troy Vincent, senior market analyst at energy analytics firm DTN, told CNET. “And he will remain, whether this conflict goes away or not.”

President Joe Biden has also accused big oil companies of profiting.

“In the midst of a war that has driven gasoline prices more than $1.70 a gallon, historically high refinery profit margins are compounding that pain,” Biden wrote in a June 15 letter to executives. of Exxon Mobil, Chevron, Shell and other companies.

“I understand that many factors contributed to the business decisions to reduce refining capacity, which took place before I took office,” he added. “But in wartime, well above normal refinery profit margins passed directly to American families are not acceptable.”

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

The $6 a gallon forecast looks much less likely now than it did in May.

Win McNamee/Getty Images

How much will gasoline cost this summer?

Market volatility has made it difficult to forecast gasoline prices. In May, Natasha Kaneva, head of commodities research at JP Morgan, predicted the price at the pump could climb to $6.20 a gallon by August.

On June 13, gasoline hit $5.02 a gallon, a record high, though still below the 2008 peak of $4.14 adjusted for inflation. But breaking the $6 threshold, or even the $5 limit again, seems much less likely today.

“If oil drops below $100 and stays there, we could see gasoline prices moving closer and closer to $4,” AAA Northeast’s Mark Schieldrop told the Boston Herald.

“Assuming everything continues as it has been, we should be back to $4,” Schieldrop added, “and hopefully we break that $4 benchmark and get back into the [$3 dollar range].”

But given the volatility in the market, “there are no guarantees,” Patrick De Haan, head of oil analysis for GasBuddy, told McClatchy News.

“The only underlying common denominator here is that volatility could lead us to dramatically different outcomes,” De Haan said.

What is the Biden administration doing to lower gas prices?

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

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

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

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

“It will bring the price of oil down a bit and encourage more demand. But it’s still a band-aid on a significant supply shortfall,” said Scott Sheffield, chief executive of Texas-based oil company Pioneer Natural Resources, at the New York Times.

In April, the Environmental Protection Agency approved the year-round sale of E15 gasoline, a cheaper fuel with higher ethanol content. The impact will be modest, as only about 2,500 of the country’s more than 100,000 gas stations sell the mixture.

The United States is also considering obtaining energy products from other sources: Biden will be in Saudi Arabia this week, in part to encourage the kingdom to increase production. But she and other OPEC countries say they are already pumping full steam ahead.

Help shouldn’t come from outside OPEC either: this year, big oil companies like Shell, BP and Exxon Mobil are expected to invest half of what they did in production a decade ago. year.

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

How can drivers save at the pumps?

You can cut back on non-essential travel and shop for the best price, even crossing state lines if that’s convenient for you.

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

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