AP

Explainer: Why gas prices are falling

Aug 11, 2022, 3:23 AM | Updated: 3:29 pm

FILE - The price of regular unleaded gas is advertised for just under $4 a gallon at a Woodman's, W...

FILE - The price of regular unleaded gas is advertised for just under $4 a gallon at a Woodman's, Wednesday, July 20, 2022, in Menomonie Falls, Wis. Falling gas prices gave Americans a slight break from the pain of high inflation last month, though the surge in overall prices slowed only modestly from the four-decade high it reached in June. (AP Photo/Morry Gash, File)

(AP Photo/Morry Gash, File)

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

Photo: A delegate wears a hat with pins during the Republican National Convention Monday, July 15, ...

Christine Fernando, Steve People and Jill Colvin, The Associated Press

Rep. Walsh speaks for Washington as cheering GOP delegates nominate Trump for president

Cheering GOP delegates formally nominated Donald Trump for president at Monday's Republican National Convention kickoff.

7 days ago

Photo: Sen. J.D. Vance, R-Ohio, right, points toward Republican presidential candidate former Presi...

Jill Colvin, Julie Carr Smyth, Steve Peoples and Zeke Miller, The Associated Press

Trump picks Sen. JD Vance of Ohio, a once-fierce critic turned loyal ally, as his GOP running mate

Donald Trump named Sen. JD Vance of Ohio as his running mate, choosing a onetime critic who became a loyal ally.

7 days ago

trump assassination...

Ayanna Alexander, The Associated Press

What to know about Trump assassination attempt and the investigation into the shooting

Authorities want to know how a shooter was able to get on top of a roof so close to where former President Donald Trump was speaking and open fire.

7 days ago

Photo: Republican presidential candidate former President Donald Trump is surrounded by U.S. Secret...

Julie Carr Smyth, Jill Colvin, Colleen Long, Michael Balsamo, Eric Tucker and Michelle L. Price, The Associated Press

Trump heads to convention as authorities investigate motive, security in assassination attempt

Trump called for unity and resilience after an attempt on his life added fresh uncertainty to an already tumultuous presidential campaign.

8 days ago

Photo: President Joe Biden speaks from the Roosevelt Room of the White House in Washington, Sunday,...

Will Weissert and Zeke Miller, The Associated Press

In primetime address, Biden says country must not go down road of political violence

President Joe Biden says “we can’t, we must not go down” the road of political violence in America after the attempted Trump assassination.

8 days ago

Photo: President Joe Biden speaks at a news conference following the NATO Summit in Washington, Thu...

Zeke Miller, Seung Min Kim, Lisa Mascaro and Colleen Long, The Associated Press

Biden says during news conference he’s going to ‘complete the job’ despite calls to bow out

Biden used his highly anticipated news conference to deliver a defense of his policies and batted away questions about his ability to serve.

11 days ago

Explainer: Why gas prices are falling