AP

Explainer: Why gas prices are falling

Aug 11, 2022, 3:23 PM | Updated: 3:41 pm

U.S. consumers are breathing a bit easier now that gasoline prices have come down from record levels, but pump prices are still high, and the two-month slide could be nearing an end.

The nationwide average price for a gallon of gas dropped to $3.99 on Thursday, according to AAA. That’s down 20% from the mid-June high, and it’s the first time the average has dipped below $4 since early March.

Gasoline prices usually rise and fall with the cost of oil, and crude has also been dropping. The U.S. benchmark price is down nearly one-fourth since early June.

Other factors are also behind this year’s roller-coaster ride in energy prices.

WHAT IS HAPPENING?

Gasoline prices hit a record $5.02 on June 14. At the time, U.S. crude was about $120 a barrel and the benchmark international price was even a couple dollars above that. Since then, however, oil prices have tumbled.

Oil prices had been rising since April 2020, as economies around the world recovered from the shock of the pandemic, and reopened — slowly at first, then more rapidly. Demand for energy outstripped supply, pushing prices higher through all of 2021 and early this year. Then in late February, Russia’s invasion of Ukraine caused oil prices to spike, and they remained high into June — although not as high as in July 2008 if inflation is considered.

WHY IS THIS HAPPENING?

High energy prices contributed to inflation, which led the Federal Reserve and other central banks to raise interest rates. Concern has increased in recent weeks about the direction of the global economy.

A recession — or even slower growth — hurts energy demand and usually pushes down oil prices. That is the scenario that oil investors now fear.

Even with prices coming down, OPEC on Thursday lowered its forecast of global oil demand for the rest of this year and next year. The cartel based those expectations on a belief that economic growth in the U.S., China and other key countries will be slower than it previously forecast.

ARE THERE OTHER FACTORS?

It’s unusual for gas prices to fall during the summer, because that’s the peak driving time for American motorists. Some analysts think the high prices have led drivers to cut back, but the evidence is mostly anecdotal.

Some states suspended their gasoline taxes, shaving more off the final price at the pump, at least temporarily.

WHERE ARE GAS PRICES HEADED?

Most analysts don’t think prices will spike in the short term unless something unexpected happens, such as a big storm that shuts down oil production in the Gulf of Mexico or floods refineries along the Gulf Coast. That has happened before, and we are still in hurricane season.

Patrick De Haan, an analyst for GasBuddy, said this week that absent something like a hurricane, gasoline prices should drop another 10 cents to 25 cents a gallon over the next couple weeks.

Tom Kloza, an analyst for the Oil Price Information Service, is a bit less sanguine. He says the 58-day streak of lower nationwide average gasoline prices “may stumble soon.”

Besides the hurricane threat, Kloza says refineries — which have been running nearly full-steam — will have to take a breather because they have delayed maintenance work and “that can’t be delayed indefinitely.”

WHAT ABOUT THE U.S. OIL SUPPLY?

U.S. oil production hasn’t fully recovered to pre-pandemic levels; it’s still down about 4.5% from 2019, according to the most recent government figures, for May.

President Joe Biden has ordered releases from U.S. oil reserves. Kloza said “even Biden bashers have to admit that the release of over 150 million barrels of (Strategic Petroleum Reserve) crude worked,” but he said it’s unclear what will happen when those releases end later this year.

WHAT’S ENERGY’S ROLE IN INFLATION?

Higher prices for energy and food have been key contributors to inflation. It works the other way too. When gasoline prices slid in July, it helped slow the overall rate of inflation.

But gasoline prices in July were still 28% higher than a year earlier, and that helped inflation roar along at 8.5%.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Arizona and New York attorneys feud over extraditing suspect...

Associated Press

Why Alvin Bragg and Rachel Mitchell are fighting over extraditing suspect in New York hotel killing

Maricopa County Attorney Rachel Mitchell says she isn't into extraditing a suspect due to her lack of faith in Manhattan’s top prosecutor.

2 days ago

A Gila monster is displayed at the Woodland Park Zoo in Seattle, Dec. 14, 2018. A 34-year-old Color...

Associated Press

Colorado man dies after being bitten by pet Gila monster

A Colorado man has died after being bitten by his pet Gila monster in what would be a rare death by one of the desert lizards if the creature's venom turns out to have been the cause.

3 days ago

Police clear the area following a shooting at the Kansas City Chiefs NFL football Super Bowl celebr...

Associated Press

1 dead, many wounded after shooting at Kansas City Chiefs’ Super Bowl victory parade

One person died after 22 people were hit by gunfire in a shooting at the end of the Kansas Chiefs' Super Bowl victory celebration Wednesday.

10 days ago

This image from House Television shows House Speaker Mike Johnson of La., banging the gavel after h...

Associated Press

GOP-led House impeaches Homeland Security Secretary Mayorkas — by one vote — over border management

Having failed to impeach Homeland Security Secretary Alejandro Mayorkas the first time, House Republicans are determined to try again Tuesday.

11 days ago

Defense Secretary Lloyd Austin, right, and Kenya's Defense Minister Aden Duale, left, listen during...

Associated Press

Defense Secretary Lloyd Austin hospitalized with bladder issue

Defense Secretary Lloyd Austin has been hospitalized following symptoms pointing to an “emergent bladder issue."

13 days ago

Joel Osteen, the pastor of Lakewood Church, stands with his wife, Victoria Osteen, as he conducts a...

Associated Press

Woman firing rifle killed by 2 off-duty officers at Houston’s Lakewood Church run by Joel Osteen

A woman entered the Texas megachurch of Joel Osteen and started shooting with a rifle Sunday and was killed by two off-duty officers.

13 days ago

Sponsored Articles

...

DISC Desert Institute for Spine Care

Sciatica pain is treatable but surgery may be required

Sciatica pain is one of the most common ailments a person can face, and if not taken seriously, it could become one of the most harmful.

...

Fiesta Bowl Foundation

The 51st annual Vrbo Fiesta Bowl Parade is excitingly upon us

The 51st annual Vrbo Fiesta Bowl Parade presented by Lerner & Rowe is upon us! The attraction honors Arizona and the history of the game.

(KTAR News Graphic)...

Boys & Girls Clubs

KTAR launches online holiday auction benefitting Boys & Girls Clubs of the Valley

KTAR is teaming up with The Boys & Girls Clubs of the Valley for a holiday auction benefitting thousands of Valley kids.

Explainer: Why gas prices are falling