A recent AAA analysis suggests gasoline prices may drop to the $3 range for the first time in four years. This decline is driven by falling oil prices and increasing oil supplies.
Last week, the national average for a gallon of gasoline was reported at $3.05. Factors contributing to this include reduced oil prices, lower demand for gasoline, and the availability of cheaper winter blend gasoline.
The last time the average price hit $3 was back in May 2021.
On Tuesday, West Texas Intermediate (WTI) futures were sold for approximately $57 a barrel.
Consumers stand to benefit from low oil prices, as crude oil makes up a significant portion of the cost of gasoline. According to the Energy Information Administration (EIA), it currently represents about 51% of gasoline prices.
AAA’s report echoes the EIA’s projections from September, which expect the average retail price of regular gasoline in the U.S. to hover around $3.10 for the rest of this year and about $2.90 by 2026.
Andy Lipow, president of Lipow Oil Associates, shared his thoughts with FOX Business, noting that gas prices are closely following the trend of decreasing crude oil prices, primarily due to market fundamentals.
Over the past couple of years, Lipow mentioned that OPEC+ has reinstated voluntary production cuts but has also ramped up supply in the market. Additionally, he highlighted domestic production levels, which have reached a record high of more than 13.6 million barrels per day, aided by extra supplies coming from Brazil, Guyana, and Argentina.
This situation has led to an oversupply in the market. Lipow pointed out that EIA estimates indicate global oil supply will rise by 3 million barrels per day by 2025, while demand is expected to grow by only 700,000 barrels per day.
Lipow remarked that oil prices have sharply dropped in recent weeks, mainly because of a surplus accumulating in floating storage—tankers holding oil with nowhere to deliver it. Interestingly, China seems to be absorbing much of this surplus by filling its strategic reserves at these lower prices.
Looking ahead, Lipow anticipates the national average gasoline price might reach $3 a gallon as early as next week. On another note, Phil Flynn, a senior analyst with Price Futures Group, indicated that the political dynamics during Donald Trump’s presidency had a role in accelerating OPEC nations’ oil production. He also noted that a reduction in global tensions, particularly in the Middle East, has further supported this drop in oil prices, as regional instability often influences market reactions.
