Declining Gas Prices Pump Up A Shaky Economy
Originally published on Fri October 18, 2013 10:34 am
In recent weeks, economists have been worrying about the negative impact of the now-ended government shutdown and potential debt crisis.
But away from Capitol Hill, the economy has been getting a big boost: Gasoline prices have been declining, week after week. In some parts of the country, a gallon of unleaded regular gasoline is now down to less than $3 a gallon — a price most Americans haven't seen in three years.
And any time the pump price starts dropping, consumer spirits start rising.
"When it falls, everyone has a smile on their face, and when it goes up, nobody is happy," said Mike Thornbrugh, spokesman for QuikTrip, a Tulsa, Okla.-based company that operates nearly 700 gas stations nationwide. Dozens of them are located in the Tulsa area, where many stations sell gas for around $2.99 a gallon, thanks to low fuel taxes and nearby refineries.
Chuck Mai, spokesman for the AAA auto club in Oklahoma, says the lowering of geopolitical tensions involving Iran, Syria, Egypt and other places in the Middle East has helped cut prices.
"Tensions seem to have cooled there," Mai said. "And no hurricanes threatening the Gulf [of Mexico], so everything looks good for continued lower prices."
Mai's assessment is shared by most economists, who are predicting prices will be heading even lower over the next several months. Analysts point to a number of triggers that shot down gas prices, allowing the average price of a gallon to slide from $3.74 in March to $3.37 a gallon this week.
Among the reasons most often cited are:
- Greater supplies. Current stockpiles of gasoline are up more than 12 percent, or about 25 million barrels, compared with last year, according to the federal Energy Information Administration.
- Lower demand. When the price of oil peaked at $144 a barrel in 2008, many Americans started rethinking their transportation choices. In subsequent years, many people traded in their full-sized SUVs and trucks for more fuel-efficient vehicles. So demand has been easing in recent years.
- Seasonal price drop. People tend to drive more in the summer on vacations and weekend trips — and then they hunker down at home in the winter, reducing demand for gasoline. At the same time, refineries are switching to their winter blends, which are cheaper.
- Refinery utilization. Gulf Coast refineries took a bit of a hit from Tropical Storm Karen, but 2013 hasn't been a tough year for hurricanes. So while some refineries have been slowed in recent weeks by routine seasonal maintenance work, they will be in good shape heading into winter.
- EPA rule changes. Some analysts are predicting the Environmental Protection Agency is going to adjust the mandate that requires refineries to blend ethanol into gasoline. If that were to happen, gas prices probably would come down further.
- Better relations with Iran. If Iran starts to change its policies regarding its nuclear program, President Obama might agree to ease oil sanctions. That could allow Iran to export more oil into the global marketplace, helping lower prices.
Despite all of those positive factors, Patrick DeHaan, a senior petroleum analyst for Gasbuddy.com, warns that consumers should not get too used to low gas prices. He says most of this autumn's bargains reflect simple good luck with the weather.
"We have not seen a hurricane this year, so we have not had to deal with that," DeHaan said. "We're past the peak season [for hurricanes], so we may be able to get out of this year without any major disruptions" in oil drilling or refining.
Prices likely will start to rise again next year when the blossoms open, and the storm season starts to heat up again. "Unfortunately, we can expect prices to go back up in the spring," he said.
Matt Trotter of Public Radio Tulsa contributed to this report.
RENEE MONTAGNE, HOST:
Economists have been focused on the negative impact of the government shutdown and potential debt crisis. But away from Capitol Hill the economy has been getting one big boost: gasoline prices have been dropping. In some places, a gallon of regular gas is now below $3, a price most Americans haven't seen in three years.
Matt Trotter, of member station KWGS, reports.
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MATT TROTTER, BYLINE: Almost everywhere you look in Tulsa, gas is $2.99 a gallon. GasBuddy.com users even report a West Tulsa station selling regular for $2.85.
MIKE THORNBRUGH: When it falls, everyone has a smile on their face. And when it goes up, nobody is happy.
TROTTER: That's Mike Thornbrugh, spokesman for QuikTrip. The company is headquartered in Tulsa and operates more than 600 gas stations across the southern half of the United States, from Arizona to North Carolina. AAA reports the average price nationwide for a gallon of regular gas is $3.35 down 17 cents from a month ago.
Thornbrugh attributes part of the drop in prices to the season.
You've had a switchover from what we call summer gasoline to winter gasoline, a huge difference in price historically.
But there are other, stronger forces acting on the market right now. Chuck Mai with AAA Oklahoma focuses on what's not happening.
CHUCK MAI: Nothing's happening in the Middle East - tensions seem to have cooled there - and no hurricanes threatening the Gulf. So everything looks good for continued lower prices.
TROTTER: Mai says there are other factors too. More fuel-efficient cars on the road, people driving fewer miles and using less gas because they're taking better care of their cars. Oklahoma drivers have seen a particularly sharp drop. Gas prices have fallen 38 cents since early September here; more than double the national average. Mai says there are a few reasons Oklahoma is typically among the five cheapest states for gas.
MAI: One, we have a very low state sales tax on gallons of gasoline.
TROTTER: Data from the nonpartisan Tax Foundation show the average state tax on a gallon of gas is 27 cents. You pay that on top of the costs to produce the gas and get it to the pump. California, which has the nation's highest gas prices right now, has a 49 cent tax. Oklahoma's tax: 17 cents.
And you've probably heard the adage location, location, location in real estate, but it applies to gas prices, too. Mai says Oklahoma is in a sweet spot.
MAI: We have refineries here in Tulsa. We have others across the State of Oklahoma. And we're close to the Gulf Coast refineries, as well. So transportation costs being low, and the state sales tax on gas being low, as well, help to keep our prices low.
TROTTER: Tulsa sits a mere 50 miles away from Cushing, Oklahoma, which calls itself the Pipeline Crossroads of the World, and not without good reason. Eight companies, including Valero, Sunoco, Enbridge, and Magellan Midstream operate pipelines in the area. And the town is a major trans-shipment point, connecting Gulf Coast suppliers with northern consumers. It also stores a huge amount of oil, somewhere between 5 and 10 percent of the total U.S. crude inventory.
Many economists are predicting gas prices will move lower over the next few months. But all bets are off if anything disrupts fuel supplies nationwide, say, a storm taking refineries offline or tensions flaring in the Middle East. Tulsa's gas prices may be among the nation's lowest, but even they can't get away from those kinds of market forces.
For NPR News in Tulsa, I'm Matt Trotter.
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