Could Gas Prices Be Heading to $3 a Gallon? Some Experts Think So: NPR

If you're looking to squeeze in one last summer road trip this upcoming Labor Day weekend, gas won't cost as much as it did a few months ago.

The national average price for a gallon of regular gasoline has fallen more than 20 cents since May and is now at $3.38 – about 47 cents less than a year ago. Experts expect this trend to continue in the coming months, potentially leading to gasoline costing $3 a gallon for the first time since 2021.

According to AAA, the price of a gallon of regular gasoline on Thursday ranged from $4.59 in California, where the state's gasoline tax is the highest in the country, to $2.93 in Mississippi, which has one of the lowest fuel taxes.

“For every Mississippi, there is a California to compensate,” says Andrew Gross, a spokesman for AAA.

“The joker in the late season is always hurricanes”

A year ago, Texas refineries were forced to curtail operations due to extreme heat, and Hurricane Idalia temporarily halted oil production in the Gulf of Mexico, contributing to higher prices. Despite record heat waves across the country this summer, Texas and Louisiana, where most of the U.S. refineries are located, were not as badly affected.

“The wild cards in the late season are always hurricanes,” says Patrick De Haan, head of petroleum analysis at GasBuddy. “If a hurricane makes landfall in a refinery area, it can really cause disruption.”

Meteorologists are warning of a particularly severe hurricane season this year, but so far everything has been calmer than expected. Hurricane Beryl caused significant damage in parts of the Caribbean and led to some disruptions in US refinery operations, but the situation returned to normal fairly quickly.

Nevertheless, energy analyst Stephen Schork, CEO and co-founder of the Schork Group, warns that we are currently in the peak hurricane season, which runs from mid-August to late October. In 2005, Hurricane Katrina in late August and Hurricane Rita almost a month later “totally unbalanced the market and caused prices to rise extremely,” he says.

Despite the devastating impact of Katrina and Rita on oil supplies, these storms were considered outliers. Typically, late-season storms have less of an impact on fuel prices, says Tom Kloza, director of global energy analysis at the Oil Price Information Service (OPIS). That's because the industry switches from a summer blend to a winter blend around August each year. The winter blend, which evaporates at lower temperatures, is cheaper to produce. And that switch happens just as the summer driving season is winding down.

“The further the hurricane season progresses without major storms making landfall, the better for consumers,” says De Haan.

Global events, electric vehicles and an aging US population are influencing prices

But other factors also influence the current downward trend in gas prices.

Iran, which produces 3 to 4 million barrels a day, continues to support its allies Hamas, Hezbollah and Houthi fighting Israel in the ongoing Gaza conflict. So far, however, this has had no impact on Tehran's oil production. “If Iran becomes more involved, that could be a problem. … But if things stay relatively under control there, it shouldn't have a major impact on gas prices,” says Gross of AAA.

Meanwhile, China's oil demand remains relatively low due to its weakening economy. OPEC+ is expected to reduce its production cuts starting in October. And the USA is producing record amounts of oil.

“We have never produced as much oil as we are now,” says Gross. This record production comes at a time when demand in the U.S. has declined – from 9.8 million barrels of gasoline per day in recent years to just under 9 million per day today, Gross says.

Kloza cites several factors that explain the shift: Remote work means fewer commuters. There are an estimated 3.3 million electric vehicles on U.S. roads, more than double the number in 2021. More electric vehicles have helped keep gasoline demand in check, though Kloza notes the effect is relatively small, with every million electric vehicles sold reducing demand by about 22,000 barrels per day. And Kloza also points to the gradually aging U.S. population—older Americans, he says, “tend to drive a lot less.”

Barring any unforeseen surprises, all signs point to fuel prices staying lower for some time. GasBuddy's De Haan says prices at the pump could hit $3 a gallon before Thanksgiving and stay low into next year.

Of course, this comes as Americans prepare for the general election. U.S. presidents have little to do with gasoline prices, but that has never stopped them or their opponents from using the issue for political capital.

OPIS's Kloza thinks we'll see that again. “Whoever wins that election in November will probably take credit for the low gasoline prices we'll see in early 2025,” he says.