Gas Prices Are Falling, But For How Long?

Norman Byrd's picture

Gas prices across the country are dropping as the nation heads into its most demanding driving season -- summer. Will they continue to drop? That depends. In fact, gas prices depend on a lot of variables. But it mostly depends on the price of crude oil and the futures market.

Gas prices are falling again, which is good news for America's drivers. Despite the scare earlier in the year that gas prices would reach $5 and more per gallon this year, prices have actually started falling. According to CNN Money, analysts believe that gas prices will continue to fall for an indeterminate period before they again rise. The length of time will depend on several variables: the price of crude oil, the futures commodities market with regard to oil, consumer demand, refinery availability and production, and other variables. Still, they are currently on the wane.

Just as in any free market scenario, there are ups and there are downs. At present, prices are decreasing due to a drop in the prices of futures (the realm of speculators) and the drop in the price of crude oil per barrel. The former has seen a drop of 30 cents in the past couple weeks. Those future prices have fallen ($3.40 to $3.10) primarily due to crude oil prices falling. Currently at $120 per barrel, the price in early April was at $125 per barrel.

Prices will continue to fall as the easing of tensions between Iran and the West continues, putting less pressure on the global market.

However, these conditions could all change in a relatively short time. Just as futures have dropped, they can rise. CNN Money cites sudden oil refinery closings as possible reasons to see at least a temporary rise in the price of gas, especially in the Northeast. Why? Simply because each refinery closing puts additional pressure on logistical supplies of gasoline. At present, there are just a handful of refineries operational in the Northeast U. S. (There are also a handful on the eastern Canadian seaboard, Quebec, and lower Ontario as well.)

But CNN Money reported earlier in April that Sunoco, who says they have been losing a million dollars a day at their refineries for the past three years, was attempting to sell one of its refineries in New Jersey. Sunoco and Conoco Phillips both closed refineries late last year, which contributed to the rise in gas prices as the Northeastern states scrambled to replace their regular suppliers. Another refinery shutdown would put stress on the already stretched supply lines.

Grumblings from the Middle East suggest that an Israeli preemptive strike on Iran just might be imminent. However, similar reports have surfaced before in light of news of Iran's nearing nuclear production capability. Such instability in one of the world's oil-rich regions often results in futures commodities being traded at higher prices.

Long periods of low consumer demand for gas -- such as in times of recession, when consumers cut back on driving -- results in larger reserves, driving the price of gas down as well. As Americans get ready for vacationing and the traditional vocational off-seasons, demand could very well be somewhat lower at present, adding to the falling prices. But lower gas prices can also signal a looming recession, although this need not always be the case.

By Memorial Day -- the last Monday of May and the traditional start of the summer season -- that could all change...

According to AAA's Daily Fuel Gauge Report, the average price of gas per gallon in the U. S. is $3.82 at present. That is a 12 cents drop from its peak of $3.94 in early April.

So how long will prices continue to drop? When will they flatten out? Analysts are uncertain.

But they are certain of one thing: gas prices are declining heading into the summer driving season, the year's most demanding period on the nation's gas supplies. And that is good news -- for now -- for American motorists.

(photo credit: Tewy, Creative Commons)

Add new comment