Why Gas Prices Are Falling - and Will Keep Going Down

  • In Business
  • 2019-06-17 23:06:20Z
  • By MoneyWise

The signs at service stations are enough to give you whiplash. After rising for months and even pushing past $4 a gallon in some places, gasoline prices are falling. And quickly.

Forecasters say serious savings are on the way, because people in some parts of the country will soon be paying less than $2 a gallon.

Usually the cost of gas goes up over the summer, so enjoy the unexpected plunge at the pump! The timing couldn't be better, as millions of people make plans for memorable summer road trips.

Here are eight reasons gas prices are falling now - and are likely to continue to go down over the next few months.

1. Oil prices are dropping

Gasoline has gotten cheaper thanks to a dip in prices for its raw material, crude oil.

The cost of crude recently hit its lowest level in six months, and prices are down more than 20% from April. Crossing the 20% threshold officially puts oil in a bear market.

Bear markets for crude oil last for an average of about 60 trading days, according to Dow Jones Market Data, which works out to roughly three months. That means oil prices could remain low for most of the summer. Gas prices, too.

2. The tariff fight is raising worries

Trade tensions are "undermining the U.S. and global economy" and have helped to push down oil and gasoline prices, says Patrick DeHaan, head of petroleum analysis at GasBuddy, which tracks fuel prices.

Oil prices have been slipping amid fears that tariffs will squeeze consumers here and overseas - and maybe even cause a recession.

If that happens, demand for fuel could plummet, and prices could drop further. During the Great Recession in 2008, oil sank from $147 a barrel all the way down to $32.

3. The US is pumping more oil

Another reason the price of oil is declining is that more of it is being produced, and supplies are rising. You do remember your lessons about supply and demand, right?

While the countries in the OPEC oil cartel have scaled down their output, U.S. production is booming, which is offsetting not only the OPEC cuts but also the impacts of U.S. sanctions on oil from Iran and Venezuela.

The U.S. is now the world's largest oil producer, and America's output is expected to break records this year. A forecast from Rystad Energy says Texas alone will soon be pumping more oil than any OPEC nation other than Saudi Arabia.

4. Refineries are back up to speed

U.S. oil refineries were plagued with multiple problems earlier this year, including refinery fires in Texas and California that led to shutdowns.

The refineries are back online now and are able to produce significantly greater amounts of gasoline. That's contributing to the increase in supplies and the lower prices.

"Refinery utilization in the United States is at its highest level since early January, resulting in overall gasoline stocks at healthy levels to meet robust summer demand," says AAA spokeswoman Jeanette Casselano.

5. Weather has been rough in parts of the US

Extreme weather around the U.S. this spring has helped bring down gasoline prices, by hurting demand for fuel. Motorists in some parts of the country decided they'd much rather just stay home than go road-tripping.

Severe thunderstorms struck across the Midwest and South in May, producing more than 200 tornadoes in 13 days. At the same time, parts of the Midwest suffered heavy flooding, and things got stormy in the Rocky Mountain region.

Now that it's hurricane season, a major hurricane could have a similar effect.

6. The Gulf of Mexico has been quiet

It's early yet, but the 2019 Atlantic hurricane season has been calm so far. (Not to be a jinx or anything.)

With no storms hitting the Gulf of Mexico, there have been no disruptions in the area's oil production. The drilling platforms off the shores of Texas, Louisiana, Mississippi and Alabama are responsible for 17% of the crude oil produced by the U.S.

Last fall, as Category 5 Hurricane Michael tore through the Gulf on its way to blasting into the Florida Panhandle, oil output in the region dropped by almost half as rigs were shut down and crews were whisked away to safer places.

7. The dollar is strong

The dollar is looking pretty beefed-up right now against other currencies. And when that happens, it tends to result in lower prices for oil and gasoline.

A stronger dollar generally makes foreign stuff - including imported oil - cheaper. Plus, oil is primarily traded in dollars worldwide, since the greenback is considered a very stable currency. And when the dollar is strong, it takes fewer of them to buy a barrel of oil.

By one measure, the greenback is up 9% against other currencies since January of 2018.

8. Economies are slowing overseas

While most economies around the world have been healthy, things are slowing down in some places. A weakened economy in China has led to lower demand for gasoline, in the country that's the world's second-largest consumer of fuel after the U.S.

China's economy hasn't been helped by the trade battle.

The U.S. has already slapped 25% tariffs on $250 billion worth of Chinese products used by manufacturers. The next round could impose a similar penalty on $300 billion in consumer products made in China, including toys, clothing and cellphones.


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