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Gas costs are falling. Here’s why, and how long the lower prices may last.


The cost of gas is falling so fast that it’s starting to put real money back in the pockets of drivers, defying previous estimates and offering an unexpected holiday gift.

Filling up is now as cheap as it was in February, just before Russia’s invasion of Ukraine touched off a global energy crisis. AAA reported that the average nationwide price of a gallon of regular Wednesday was $3.50, and gas price tracking company GasBuddy projected it could fall below $3 by Christmas. And all that relief likely helped drive robust shopping over the Thanksgiving weekend.

“People are realizing that they might be back to spending $50 to fill up the tank instead of $80,” said Emma Rasiel, a professor of economics at Duke University. “That’s the main signal consumers notice of inflation. That’s the only thing they’re likely to track, how much it’s gone up or down, because every week they have to fill up the car.”

But Rasiel warned that cheaper gas could also give consumers the wrong idea. The prices of other goods and services are much less volatile, and there is no indication that this moment of cheaper fuel is driving down the costs of other things.

Although the drop in prices at the pump is helping to spur a national shopping spree, it is a reflection of the financial strain consumers and businesses are facing around the world. Prices are falling as demand for oil and gas falls as countries brace for recession, coronavirus outbreak in China is threatening major economic disruption and drivers are cutting back on gas guzzlers as they try to save money to cover soaring mortgage payments and stock market losses.

Earlier worries that sanctions against Russian oil would create a supply shortage and send prices soaring towards the end of the year have, for now at least, given way to ailing economies and jittery financial markets.

“We are heading into a severe recession in Europe and further economic downturn in the US as people struggle with high interest rates and worry about their personal wealth and savings,” said Ben Cahill, an energy security analyst at the Center for Strategic and International Studies. “Put it all together and it creates a bleak picture for oil demand. The prices reflect that.”

Also helping to keep prices low for now are some key U.S. oil refineries that returned to taking out gasoline after months of being out of commission for maintenance and repairs

But an equally big factor is the unrest in China. As leaders signal that new coronavirus shutdowns are imminent, touching off protests across the country, the expected economic fallout has turned oil traders bearish.

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China alone accounted for 16 percent of global oil demand last year, according to research firm Capital Economics, which estimates that oil purchases will fall by 1 million barrels per day in December as coronavirus infections spread. The effect of such a fall on global oil markets is significantly, reducing the price of Brent oil by as much as $10 per barrel, or more than 10 percent.

“With COVID cases rising to record levels in China and the threat of widespread shutdowns there growing, the key question is how much demand can fall, freeing up supply for the rest of the world,” Edward Gardner, a commodities economist at Capital Economics, wrote in a research note .

While the high cost of gasoline for much of the past year was a major factor in the crushing inflation that hit the United States and other countries, the decline in fuel costs does little to stabilize the economy. Producers that depend on large quantities of fuel will have to see sustained low prices for months before they adjust the costs of the products they sell, analysts say. And drivers in some parts of the country benefit significantly more than others. Californians still pay an average of nearly $5 for a gallon of regular.

“This is a pretty delicately held together price decline,” said Patrick De Haan, head of petroleum analysis at GasBuddy, noting that any number of geopolitical or economic events could push prices higher.

There are other major factors that make the price outlook scary. The US and Europe are negotiating a price cap on Russian oil, which will come into effect on Monday. The plan is to keep Russian oil flowing into global markets, but at prices that limit the profits the Kremlin can use to maintain its war machine.

Such a price cap has never been imposed on a major oil-producing nation, and it threatens to trigger further instability. If the cap is set very low, as some European nations are advocating, Moscow could retaliate by cutting supply, driving up prices globally.

Another wild card is the OPEC Plus consortium of oil-producing nations, which meets next week to consider how much oil its members should continue to send in the coming months. The group may decide to cut production to raise prices.

“The OPEC meeting could be the skunk at the picnic,” said Andrew Gross, a spokesman for AAA. “Trying to guess what they’re going to do is difficult.”

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These are the kinds of things that worry John Catsimatidis, who owns hundreds of gas stations and a refinery – but not because they might affect his fuel business. When the businessman talks about gas prices, he’s more focused on what they could ultimately mean for another business in his multibillion-dollar empire, that of real estate development.

Rising borrowing costs have made the business much more challenging. A six-month stretch of $3 gas, he said, could help ease inflation and signal that it is safe for the Federal Reserve to ease its latest rate hikes.

“If we get the price down and it stays there, we can fix the problem of inflation and the Fed can stop raising interest rates and put everyone out of business,” Catsimatidis said.

One thing that is clear is that there is little that leaders in Washington can do to keep gas prices down. They are at the mercy of global markets.

The Biden administration is likely to pressure Saudi Arabia, which dominates OPEC Plus, not to cut production. But the administration’s lack of influence over such matters was evident the last time OPEC Plus met, in October, when the group rejected Washington’s request to increase output, instead cutting it by 2 million barrels per day.

The administration eased sanctions on Venezuela last week as part of an effort to get oil flowing from the country again. But it will take many months for Venezuelan petroleum to be shipped, and only marginal quantities will be available initially.

Most drivers pay little attention to the broader dynamics of the global oil market. But even they are taking a cautious approach, despite the fact that they may be saving for holiday gifts.

Data collected by AAA suggests they are sticking to the conservative driving habits embraced when gas soared above $5 a gallon, packing more errands into single car trips, driving at slower speeds and only partially filling their gas tanks. Prices may have fallen, but drivers are not taking their foot off the brakes.

That much is also evident in the outlook for consumers, which often improves when gas prices fall. But the University of Michigan Consumer Sentiment Index suggests this part of cheaper gas is being overshadowed by other economic challenges straining Americans. Although gas prices fell, the national survey shows, consumer anxiety increased in November.

“Even though the prices of gas have gone down, the prices of other things are still high,” said Joanne Hsu, who directs the university’s consumer research. – There is a feeling of enormous uncertainty.

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