(The Hill) – U.S. gas prices started the summer driving season lower than usual, with experts pointing to mild demand and cheaper oil as factors contributing to the moderate costs.
Though confounding variables, such as the hurricane season and downstream effects of extreme heat, could still shake things up, prices are expected to continue declining in the coming weeks — a welcome forecast for consumers, and for President Joe Biden as he seeks reelection this fall.
Prices began the week at a national average of $3.44, a drop of nearly 10 cents from last week, according to AAA. By Wednesday, that average had ticked up to $3.45, but remains about 15 cents down from this time last year. The decline is even steeper compared to a month ago, when the average hovered around $3.61.
“[Prices] are coming down, and they’re likely to keep coming down until we get to the Fourth of July … that’s as far out as we’re comfortable projecting,” said Andrew Gross, a public relations manager with AAA. The gap could continue to widen, he said, possibly dropping below $3.30 for the national average.
“As far as prices go, it’s been a pretty noticeable decline for most folks to see,” said Patrick DeHaan, head of petroleum analysis at GasBuddy.
At the state level, he added, some states like Arizona are down nearly $1 a gallon compared to this point in 2023. As of Wednesday, AAA data indicates the averages in Oklahoma, Tennessee, Arkansas and Mississippi have all dipped below $3 a gallon. Zooming in even further, DeHaan said tens of thousands of individual gas stations are also below $3, most of them in the Gulf region and the South in general.
Looming over this minimal pain at the pump is the impending 2024 presidential election. Although presidents have little or nothing directly to do with the price of gas, they typically receive credit or blame for it from voters. Biden in particular saw his approval ratings continue a downward slide in the summer of 2022, when already rising prices soared to record highs after Russia’s invasion of Ukraine disrupted global energy markets. The White House branded the spikes “Putin’s price hike” but has sought to take credit for the declines that have occurred since.
“Core inflation is at its lowest level since April 2021, grocery prices have fallen for four months in a row, and gas prices are below $3.50 on average across the country,” Biden said in a White House statement Tuesday following the release of May’s consumer price index report.
The administration, after releasing a record 180 million barrels from the Strategic Petroleum Reserve to offset the shocks from the Ukraine invasion, also recently announced another release of 1 million barrels in the Northeast ahead of Memorial Day.
Other factors have also played a role in recent shifts in the price of oil, which Gross notes is a major contributor to gas prices.
The bloc of major oil-producing OPEC nations announced a production cut of 1.65 million barrels a day last April with the aim of increasing oil prices and has extended the cut several times, most recently agreeing in early June to extend it to the end of 2025.
However, the cuts have to some extent become the status quo, DeHaan said, to the point that the market’s reaction to them is now minimal.
With the cuts a foregone conclusion, he said, “the market didn’t react when they extended these cuts again.” If anything, he said, oil prices fell as a result of OPEC setting an end date for the production cuts, although the bloc may announce another extension at some point.
In addition, domestic oil production has reached record highs under the Biden administration, and “the market doesn’t react to OPEC statements like they used to,” Gross said.
Amid all of it, the price of benchmark Brent crude oil fell to $82 a barrel in May, an $8 decline from April, according to data released by the Energy Information Administration on Monday.
Cheap oil has combined with relatively weak demand to create the current trend in gas prices, Gross said. DeHaan projected current gasoline demand as equivalent to about 8.8 million barrels of oil a day.
“When the number starts with an eight instead of a nine in the summer, things are a bit soft,” he said.
Gross points to possible reasons for softer demand: Demand saw a major plummet during 2020 in the heart of the COVID pandemic, and those effects still linger, combined with cars becoming more fuel-efficient and more people buying electric vehicles.
“After a major catastrophe like 9/11 or the pandemic it takes four to five years for people to rebalance,” he said. “Maybe we’re in that same period, but maybe this summer will prove that demand is back. Maybe we’re back to normal, [but] we probably won’t know until September.”
After the record gas prices of summer 2022, he added, AAA research indicates many Americans began driving less and consolidating their errands into a single car trip to save money. “Maybe those habits stuck, we don’t know yet,” he said.
Two upcoming seasons could deliver a shock to the system, however. First, the hurricane season could disrupt production in the Gulf of Mexico, or even the appearance of such a storm could cause jitters in the market that cause price increases. The other factor is extreme summer heat: Last year was the hottest summer on record, and 2024 will likely bring similar extremes. These temperatures can disrupt operations at refineries, Gross noted.
“Refineries are like Goldilocks, they don’t like extreme heat or extreme cold, [and] sometimes they have to dial back production” as a result, he said.