Oil prices have fallen so far that traders are hotly debating where they will go next. Benchmark West Texas Intermediate crude was over $60 per barrel at the start of the year. It recently fell under $20. Experts say that unprecedented supply married with a fall-off in demand because of a contracting global economy will take prices much lower. A growing minority believes that the current price could be cut in half. That, in turn, would press gasoline prices toward $1 per gallon, where they were as recently as 1989.
OilPrice.com recently gathered the opinions of crude traders. Several said $10 a barrel oil is a possibility. At that level, gasoline would likely drop to $1 a gallon. Oil prices are the primary influencer of the price of gas. In Canada, some producers already have begun to market sub-$10 crude. In all cases, the primary trigger of the falloff is the oil price war between Russia and Saudi Arabia. Saudi Arabia means to cripple competitors that cannot make money at the $10 level. Experts say Saudi Arabia can make money at $8 a barrel.
Demand has dropped and will continue to do so. Large airlines have mothballed jet fleets in the hope that they might remain in business. In parts of the world where travel is limited, the demand for gasoline has fallen to near zero. A deepening recession has begun, which will put more downward pressure on crude.
As mentioned, the last time the average price of a gallon of regular gasoline was under $1 was 1989. However, it dropped to an average of $1.06 in 1998. That year, in November, some crude contracts fell as low as $10.82 a barrel.
According to GasBuddy, the average for a gallon of regular gas has dropped below $1.50 in some states. In Houston, it is below $1.40. In some parts of Michigan, local prices are even lower. The same is true in Cleveland, which means low prices are not isolated to the states along the Gulf of Mexico that house many of the country’s largest refineries. It is rare that gas prices in northern states are lower than those in places like Texas and Mississippi.
Many experts have pointed out that, because of a deep recession and areas of the United States locked down because of COVID-19, drivers cannot take advantage of historically low gas prices. While that is true, in vast parts of America where the effect of the virus is less serious, people still need to drive to work or to school. They will be among the small number of beneficiaries.
Oil is already at $10 a barrel in some parts of North America. Supply and demand will make more producers drop their prices as well if they want to remain competitive.
It should come as no surprise that gas prices in some parts of America will reach $1, although it will be a sign of two disasters: a major oil price war married to plunging global demand.