Gas Prices are Finally Down Just In Time for Summertime
Get ready to start your engines this summer. According to a recent Associated Press report, gas prices are poised to fall as Memorial Day — the unofficial start of summer — approaches. Wholesale prices have already plunged by 22 cents a gallon in one week; an event most likely due to rising supplies and concerns over the global economy. If prices at the pump fall in line with the decline currently occurring at the wholesale level, a typical driver using 50 gallons of gas a month will see an $11 drop off their fuel bill.
The federal government’s Energy Information Administration still forecasts an average of $3 a gallon for most of the summer driving season. Although they are not yet ready to concede, experts and economists claim that pump prices have most likely reached their peak.
This decline has already gradually started to filter down to consumers, who see a national average of $2.90, though it will take several weeks for the full effects to take hold.
By the actual summer season, motorists could see gas price plummet to below the $2.70 mark, which was last summer’s peak. Compared to July of 2008 when gasoline rose to an unprecedented national average of $4.11, the latest changes are welcome news for motorists.
Yet the experts who are currently boldly estimating a drop in gas prices predicted just three months ago that drivers would experience an average of more than $3 per gallon by Memorial Day; a holiday that boasts some of the greatest number of drivers out on highways. What influenced this drastic change in expected price?
For one, Greece’s continuous woes caused European debt crisis to escalate. Analysts were prompted to lower their energy demand forecasts after many have lost confidence in the strength of the global economic recovery.
Furthermore, since the euro is dropping further and further against other currencies, investors are flocking to the dollar, which is considered a relative safe haven.
“Oil prices are always quoted in U.S. currency, so, if the dollar is stronger, then that tends to depress gas prices,” said UCI professor of economics Jan Brueckner. “Frankly speaking, when the dollar goes up, the price of gasoline goes down.”
Secondly, supplies of gasoline are rising steadily. The United States currently has over 220 million barrels of gasoline in storage, which is approximately five percent more than what the nation had a year ago. The output from these refineries has also been growing at a faster pace than the demand for the commodity, which directly impacts the cost of wholesale gas prices.
Finally, economists look to the fact that the political unrest in oil-producing countries has eased considerably. According to traders, tensions in the Middle East and violence in Nigeria, for example, have been fairly minor of late. However, this is the most volatile of the three explanations and could change without warning. Anything — from a resolution in Europe’s crisis, to a decline in the dollar, to signs that the global economy is growing — could send oil prices right back up.
Surprisingly, none of the experts considered the massive oil spill in the Gulf of Mexico to be one of the factors. The devastating leak in the ocean only minimally impacted petroleum production, which means it did not directly influence fuel prices.
“The oil spill is definitely upsetting,” Brueckner said. “However, relative to the total amount of supply in refineries, the amount being lost is rather small. There simply is not enough oil being lost to affect the total supply of gas and, therefore, its cost.”
Brueckner added that lower gas prices would benefit consumers strained by the economic crisis.“I do have to say that, if the prices indeed go down, it will be a tremendous help to the economic recovery,” Brueckner said. “More people will use the money they save from this projected drop in energy prices on extra things, like clothes, going out to dinner, and even spur-of-the-moment vacations.”
Experts indeed suspect that citizens nationwide will slightly boost the economy and increase consumer spending, but they also predict that most will see the low gas prices as being short-lived and fleeting. Therefore, they will anticipate rising gas prices in the near future and quickly pocket the savings, a view maintained by students: “I would most likely initially spend the extra money on food,” said third-year English major, Cheyenne Arnold. “Soon, though, I would definitely try to save the extra money so I can buy larger purchases in the future.”
The American Automobile Association is now forecasting that more people will be leisurely traveling this Memorial Day weekend than previously anticipated due to the improving economy, so the potential for reduced oil prices is a welcome possibility for Americans preparing for vacation.