Why Are Gas Prices Falling? Impact of Oil Prices and OPEC

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Gas prices have trended mostly upward throughout 2023, but the good news is that average costs at the pump just dropped for two weeks in a row. Unfortunately, not everyone is seeing relief at the pump: Drivers in California are stuck paying over $6 per gallon.

New data from automobile organization AAA and gas price tracker GasBuddy shows that gas prices are, by and large, cooling. But drivers in the western U.S. are not saving money on gas like everybody else.

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Why gas prices are falling

The average price of a gallon of regular gasoline rests today at about $3.77 a drop of 6.5 cents over the past two weeks, according to a new GasBuddy report. Gas prices nationally are slightly lower than they were a year ago too.

As AAA notes, demand for gasoline remains lower than normal; while oil demand has risen since last week, it remains depressed compared to October 2022. Yet, sticky oil prices have kept the important commodity’s prices from coming down even in the midst of slack demand.

The average price of a barrel of oil increased by almost 30% in the third quarter to about $90 per barrel, the highest prices seen in 2023. For drivers, these high prices aren’t good news; crude oil is the main ingredient in gasoline, and oil prices account for roughly half of what consumers will pay for gas.

GasBuddy analysis chalks up the high prices to OPEC+ production cuts, which have eaten into global inventories and sent U.S. crude oil inventory down by 2.2 million barrels (however, inventory remains 14 million barrels over last year’s). It adds that U.S. refineries are also undergoing a routine maintenance period, which would keep production limited for the time being.

AAA suggests that gas prices will continue inching downward in the days ahead, but that this decline will be very slow due to high oil prices. The takeaway is that while gas prices generally drop in the autumn, the decline may not be as big this year.

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California gas prices could fall soon

While the national average cost of gasoline is dropping, the West Coast is seeing a different picture. California is the only state where a gallon of gas averages over $6, and many western states have seen gas prices spiking instead of dropping.

Compared to one month ago, gas prices in California are up by nearly 70 cents. Arizona and Nevada have seen prices increase by about 30 and 60 cents, respectively. Oregon, Washington, Idaho, Utah and Montana all have average prices over $4 per gallon, although the cost of fueling up in these states has remained mostly flat over the past month.

GasBuddy analyst Patrick De Haan suggests that gas prices will continue to ease nationally, and that even includes the West Coast. “With California allowing the transition to winter gasoline to begin immediately, easing supply concerns, we’re likely to see nearly the entire country see gasoline prices trend lower in the week ahead,” De Haan said.

Once the period of refinery maintenance is finished, De Haan predicts that the increased production that will follow could lever California gas prices below $5 before the year is through.


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