Gas prices are low and falling

If you follow social media, you see the debates and complaints about gas prices. Interestingly, I also often see misrepresentations and politically-tinged misinformation about it. Currently, gas prices are low and according to many sources, they could continue to fall until 2025. While these are not the only factors, there are also weather-related correlations with low gas prices. Let’s talk about them.

Accordingly NPRThe national average price for a gallon of regular gasoline is about $3.38, and many experts predict that prices could fall to $3 per gallon of gasoline. If that happens, it would be the first time since 2021, when the world emerged from a pandemic-related shutdown, that that price would be that high. Speaking of the COVID shutdown, it’s a good reminder of basic supply and demand principles. According to a report from the U.S. Bureau of Labor and Statistics, “BLS petroleum product price indices in early 2020 reflected the dramatic shift in economic activity caused by the onset of the COVID-19 pandemic. Shocks to demand and then supply pushed petroleum product prices down.” As the world “reopened,” petroleum prices rose.”

Frankly, it’s a pretty obvious fact that a global shutdown would lead to lower gasoline demand. Why are gasoline prices so low right now? It’s all about supply and demand. On the supply side, global oil production remains relatively stable despite various conflicts in fossil fuel-rich regions. NPR’s Scott Neuman writes, “China’s oil demand remains relatively low due to its struggling economy. OPEC+ is expected to begin narrowing production cuts starting in October… the U.S. is pumping record amounts of crude.” If OPEC+ increases production, it could lead to further price reductions in the coming months.

COVID is also the cause of another impact on demand. A recent study from the University of Florida found that “about 14% of workers work exclusively from home, but up to half of all workers could work remotely at least part of the time.” The press release goes on to say, “Remote work could save hundreds of millions of tons of carbon emissions from car travel, according to a new study – but at the cost of billions in lost public transit revenue.”

Weather and climate can also be important factors. We are approaching early September and the peak of the Atlantic hurricane season. Hurricane activity in the Gulf of Mexico can significantly impact oil production. According to a blog by Mansfield, the Texas and Louisiana region accounts for nearly 50% of the U.S.’s refining capacity. Cassia Paz writes, “A single hurricane could potentially knock out more than 1 million barrels of refining capacity per day, leading to extended outages or even permanent closures in the case of severe damage.” The graphic below illustrates how hurricanes such as Katrina (2005), Rita (2005), Gustave (2008), Ike (2008), and Ida (2021) have disrupted supply chains over the past few decades.

The Atlantic hurricane season has yet to peak and meteorologists are expecting an active season. However, there are seasonalities in gasoline blends. According to an NCAS blog, gasoline blends used in the summer months are different from those used in the winter. Winter blends evaporate more easily, allowing for better ignition in colder temperatures. Those same evaporative properties would lead to more photochemical smog and emissions in the summer. Winter blends are also typically cheaper to produce and September is usually the transition month to this blend. Because of this, hurricanes at the end of the season may not have as much of an impact on gasoline prices.

However, hurricanes are not the only weather factor. Extreme temperatures, whether cold or hot, can also affect supply and demand. Forbes Colleague Jim Forester wrote: “Refineries typically designed to operate between 0 and 35 degrees Celsius can experience equipment failure, production capacity can decrease, and unsafe work environments can develop that can further delay operations in extreme heat conditions.” In recent years, I have witnessed disruptions to oil production infrastructure related to the 2021 cold snap in Texas and also how workers on oil production platforms succumbed to the extreme heat in 2023.

In 2023, massive wildfires in Canada have disrupted operations in the fossil fuel industry. Texas and Oklahoma are major players in gas production, but are located in a region prone to severe weather such as tornadoes, hail and strong wind gusts. According to a Boss Magazine In an editorial, regulators ordered the creation of a “supply chain map for proactive emergency response in all parts of the state, including areas without adequate environmental protections related to non-enriched gas facilities.”

Interestingly, another weather-related “factor” is helping to drive down gasoline prices. A significant portion of the U.S. population has switched to electric vehicles. Many of them, like me, want to help reduce carbon emissions to counteract climate change, which is now impacting extreme weather. I know, I know. Some of you are saying, “The electricity for your electric vehicle may be generated from fossil fuels. That’s true, but there are also numerous balancing and energy sources on the grid now.”

According to the International Energy Agency website, “New electric vehicle registrations in the United States will total 1.4 million in 2023, an increase of more than 40% from 2022. While relative annual growth in 2023 was slower than in the previous two years, electric car demand and absolute growth remained strong.” People who drive electric cars have a lower need for gasoline, which experts say also helps lower current prices.