Energy Economy

Oil Below $40 Means Gas Below $2

Douglas A. McIntyre

The slow period when some refineries are off line is nearly over, which means the drop in oil prices will rapidly become the primary movers of gasoline prices. The average price of a gallon of regular dropped toward $2 when oil fell below $50 in late January and March. This is a relatively good measure of what will happen to gas prices soon.

The AAA recently forecast a sharp drop in August gas prices. Its researchers commented:

Gas prices could drop more dramatically after Labor Day as people take fewer road trips and use less gasoline, which could lead to an even larger glut in petroleum supplies. In addition, stations in many parts of the country can switch over to less expensive winter-blend gasoline on September 15. The Southeastern and Central United States are the two regions most likely to see a large number of gas stations offering prices around $2 per gallon this winter.

While the price of an average gallon of gas nationwide is already falling, the AAA forecast did not anticipate the collapse in oil prices to $40 recently. The price of gas nationwide is $2.65 and has remained at that level for two weeks. In some states, the price is substantially lower. This particularly applies to states with low taxes and tariffs on gas, as well as states that have or are close to larger refineries.

One cluster of large refineries is in South Carolina, where gas prices have dropped to $2.16. It would not be shocking to see that figure drop under $2 within a month. Mississippi, which is on the Gulf and near refineries, has an average price for a gallon of regular at $2.23. The price in Alabama is $2.21, and in Louisiana it is $2.32.

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Drivers in some states have the huge advantage of low taxes and levies. In South Carolina, the figure is $0.35 a gallon, against a national average of $0.49. The number is $0.37 in Mississippi and $0.39 in Alabama. Other states with a figure under $0.40 include New Jersey, Oklahoma, New Mexico, Arizona, Texas and Tennessee. Each of these has large clusters of refineries or is close to states that do. That makes gas under $2 likely in at least 10 states before the end of the year.

Gasoline prices are headed to $2 a gallon, and in some states will be there soon.