The national average price for regular unleaded gasoline could slide to $2.50 a gallon by Christmas, and likely will fall to the lowest level since 2009 in a matter of days. Friday’s national average gas price dropped 11 cents this week to $2.60 per gallon, down 32 cents in the past month, 65 cents below year ago prices and marks the least expensive price since (Feb. 18, 2010). As crude oil costs continue to slide, gas prices are poised to fall even further in the next several weeks. The price at the pump has already tumbled by more than one dollar ($1.10) since the 2014 peak of $3.70 per gallon in April.
Global oil markets are still struggling to find a bottom since the Organization of Petroleum Exporting Countries’ (OPEC) decision to sustain production levels. West Texas Intermediate (WTI) fell to its lowest price in five years on Friday and this continues to mean cheaper gasoline at the pump for drivers. In an attempt to protect its share of the global market, Saudi Arabia, OPEC’s second largest member, is sustaining its recent price cuts and is offering barrels of oil at prices not seen in at least 14 years. This move could possibly put pressure on U.S. crude production, which is at its highest level in 30 years, and has been a leading factor for the global oil market’s increase in supply. The new oil production that has come online in the U.S. in recent years is generally understood to cost more to get out of the ground than oil produced in Saudi Arabia. If oil prices continue to fall, this more expensive U.S. production could stop being profitable, which could take some production offline until prices increase again. At the close of formal trading on Friday, (WTI) settled at $57.60 per barrel.
The Energy Information Administration (EIA) noted in its weekly report that crude oil inventories saw a 1.5 million barrel build to 380.8 million barrels. Gasoline inventories grew by 8.2 million barrels to 216.8 million barrels, much larger than expected in part due to a massive drop in gasoline demand. Gasoline demand, which had been running at very impressive numbers, was off by nearly 10 percent last week to 8.549 million barrels per day (bpd), down 856,000 bpd. The drop in gasoline demand does look excessive, but the number actually coincides with demand levels seen the same week going back to 2011.
“Gas prices are poised to fall to their lowest levels since 2009 in the coming weeks, as crude oil costs continue to slide, said Tracy Noble, spokesperson for AAA Mid-Atlantic. “The national average has already tumbled more than one dollar ($1.10 on Friday) since the 2014 peak of $3.70 per gallon in April and AAA anticipates prices could test $2.50 by Christmas.”
The Week Ahead
The average price for retail gasoline historically declines from fall into winter due to a number of factors including decreased demand. Consumers can expect to see the price at the pump tick lower as we approach the New Year, however, crude oil would have to fall by another $25 to $30 per barrel to cause the national average to drop below the $2.00 per gallon threshold this winter, which remains unlikely. The price of oil accounts for approximately two-thirds of the price at the pump, and a $10 per barrel drop in the price of crude oil results in about a 25-cent drop in retail prices for motorists.
CURRENT AND PAST GAS PRICE AVERAGES
Regular Unleaded Gasoline (*indicates record high)
|12/5/14||Week Ago||Year Ago|
|Cape May County||$2.59||$2.67||$3.28|
|Middlesex, Somerset, Hunterdon||$2.54||$2.64||$3.29|
|Monmouth, Ocean Counties||$2.55||$2.66||$3.30|
|Crude Oil||$57.60 per barrel||$65.84 per barrel||$97.50 per barrel|