U.S. drivers have seen welcome relief in recent weeks as gas prices steadily drift lower, even while oil continues to trade near $90 per barrel. The national average gasoline price now sits at $3.58 per gallon, down 30 cents over the last month.
What’s behind this divergence between oil and gas prices? And what does it mean for the average American’s wallet?
Seasonal Shifts Push Gas Prices Lower
The primary drivers pulling gas prices downward are seasonal factors. In the fall, refineries begin switching to cheaper winter-blend gasoline formulations. At the same time, cooler weather means lower fuel demand. Both these trends allow gas prices to detach from oil markets.
Rebecca Babin, an energy trader at CIBC Private Wealth, explained that “gas prices seasonally fall every autumn. 2022 is no exception.” Gas prices often decline 20 to 25 cents per gallon or more between September and December.
Supply Growth Eases Market Tightness
This year’s price declines also come as fuel inventories have rebounded nearly 10% from 2021 levels. Whereas last year saw tight fuel supplies amid recovering demand, expanded refinery runs have improved market balance in 2022.
“Anything that adds product to the market is going to help bring down refinery margins,” said Jeff Barron of the U.S. Energy Information Administration. These inventory and supply differences make today’s environment markedly different from a year ago.
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OPEC Cuts, Geopolitics Still Support Oil
On the crude side, OPEC+ production cuts and global disruptions have kept oil prices elevated. Prices spiked last week on Middle East escalation fears before retreating again.
According to Babin, oil markets remain well-supported in the low $80s per barrel due to the supply-demand balance. Further gains into the $90s could threaten demand, however. The key uncertainty is whether OPEC+ extends output curbs into 2023.
Gas Demand Slackens Amid High Prices
Sky-high prices have also dampened U.S. retail fuel demand, which recently slipped below 2020 levels. Brenda Shaffer, an energy specialist at Georgetown University, notes demand may decline “as Americans cut back on unnecessary car trips to save money.”
With households pinched by inflation, discretionary driving becomes a prime target for budget cuts. But lower fuel consumption then puts further downward pressure on prices.
The Consumer Impact
Falling pump prices come as welcome relief, especially heading into the busy holiday travel season. The 40-cent drop from the September peak has saved U.S. households nearly $10 billion, by some estimates.
“It’s like getting a little raise, without having to ask your boss,” says Patrick De Haan, head of petroleum analysis at GasBuddy.
Lower fuel costs help curb inflationary pressures and provide savings that can be redirected to other household needs. But prices remain elevated historically. Americans are still paying nearly $400 more per year to fill up than just two years ago.
While the gas price outlook remains murky, any further declines over the next few months would aid consumers through winter. Yet many will likely remain wary of rising fuel bills cutting into tight budgets.