Gasoline prices which caused trouble last year have fallen significantly

Gasoline prices, which caused trouble last year, have fallen significantly

Americans who fill up their cars this Memorial Day weekend will be able to take a break — at least compared to a year ago when gas prices were skyrocketing.

The nationwide average price of regular gasoline is a full dollar a gallon lower than a year ago. In May 2022, motorists paid over US$4.60 and in the second week of June prices were as low as US$5. They were paying just over $3.50 a gallon for regular gasoline this week, according to the AAA.

Barring a major disruption to global oil supplies, many energy experts expected prices to remain at these levels for most of the summer.

Because gas prices are posted on street corners on large colorful signs, they can have a powerful psychological impact on consumers, especially middle- and low-income people who tend to drive older, less fuel-efficient vehicles and spend a larger portion of their income out of energy than wealthy people.

“Who wouldn’t want to save that money?” said Eddie White, 46, who uses his pickup truck to make deliveries and offer rides through Uber. Mr. White, who lives in the Houston area, fills up at least once a day and says he saves about $420 a week. With this money he finances courses that help him to become an insurance adjuster.

Aaron Hawkins, 22, runs a phone store and serves in the Army Reserve. His reserve duties require him to drive regularly between Houston and Baton Rouge, Louisiana. He said he saves between $150 and $200 a month on gas.

“It’s much better for everyone,” he said of the lower prices.

Prices rose last year after Russia invaded Ukraine in February. Oil traders had expected Russian exports to fall due to sanctions imposed on the country by the US and its allies in response to the invasion.

The war is still ongoing, but Russia has found a way to continue selling its oil, albeit at greatly reduced prices, primarily to China and India. As a result, global oil supplies remain plentiful. It also helped that the United States and other developed countries released oil from their strategic reserves as prices rose.

At the same time, the demand for oil and the fuels made from it has not increased much. In the United States, fuel consumption has not changed much compared to last year and has yet to reach pre-pandemic levels. But that could gradually change. Gasoline demand has increased over the past month and AAA is forecasting a 7 percent increase in holiday weekend trips from a year ago.

With supply stronger and demand weaker than many traders and analysts expected, the US benchmark oil price gradually fell from around $120 a barrel last summer to around $72 a barrel on Thursday.

Prices rose briefly last month after Saudi Arabia, Russia and other major oil producers announced they would cut production by 1.1 million barrels a day, or just over 1 percent of global supply.

But that rally has stalled and oil prices have fallen in recent weeks. Many traders are increasingly concerned that the Federal Reserve’s rate hikes, aimed at bringing down inflation, could slow the economy and trigger a recession. The central banks in Europe are also pursuing a similar policy.

Fears of a recession have also increased in recent weeks as debt ceiling negotiations between President Biden and Republicans in the House of Representatives have stalled. Elsewhere, signs that China and India, the world’s most populous countries, are not buying as much fuel as expected have also put a damper on oil prices, according to a report by Eurasia Group, a research and advisory firm.

“Last year there was higher demand growth and lower supply growth,” said Linda Giesecke, head of demand analysis at ESAI Energy, a consulting firm. “This year demand and supply are relatively balanced.”

After struggling with high inflation for nearly two years, many Americans seem to have changed how and where they buy gasoline and diesel, said Tom Kloza, global head of energy analysis at the Oil Price Information Service. Many people have started buying fuel from major retailers, who often offer lower prices than independent gas stations.

“The Costcos, the BJs, the Sam’s Clubs, the Buc-ees, the supermarkets — they’ve all gained market share from 2020 to 2022, and they’re not going to give it up,” Mr. Kloza said. “It’s harder for the little ones out there,” he added, referring to gas stations that carry the brands of big oil companies like Exxon and Chevron but are typically owned by families or small businesses.

Warehouses and other large retailers can offer lower prices because they negotiate the best deals with refiners and buy their gasoline in bulk.

Another price-dampening factor is the growing popularity of electric vehicles. Battery-powered vehicles could become increasingly important over the next decade to reduce demand for fossil fuels and mitigate climate change.

Patrick De Haan, head of petroleum analysis at GasBuddy, a company that tracks gas prices, said he expects the nationwide average price for regular gas to stay below $4 a gallon this summer. He estimated that consumers would spend $1.6 billion less on gasoline over Memorial Day weekend than they did last year. The Department of Energy recently estimated that the average national gasoline price this summer would be $3.40 a gallon, about 20 percent lower than last year.

Of course, prices vary significantly across the country, due in part to differing state gas taxes and the cost of real estate, labor, and other costs. The Department of Energy estimated that the average price of gasoline on the West Coast this summer would be $4.30 a gallon, about 90 cents above the national average.

Gasoline prices tend to be at their highest between April and September, when people drive more. Additionally, summer gasoline tends to be more expensive to produce because pollution regulations require a different blend.