Gas Prices Start to Plunge

Oil prices have dropped to a four-year low of $57.50 a barrel. The reason was the announcement by OPEC+ that it would raise output by 411,000 barrels per day. It also announced a cut the month before.

The trigger for the sharp decline is how much of the world’s crude OPEC+ provides. In discussing OPEC’s output hikes, Peter McNally, a Third Bridge analyst said, “For the producers outside of the OPEC+ group, which is now nearly 60% of global oil supply, the market share gains may have reached a peak if these new barrels are fed into the market and prices move lower.”

Additionally, U.S. production has recently reached an all-time high. Russia continues to put crude onto the market, although much of it is sold to China and India.

The primary contributor to gasoline prices is crude. Falling crude prices could take the average price of a gallon of regular nationwide to well below $3. Even during the COVID-19 pandemic, the average price per gallon of regular gasoline nationwide remained well above $3.00. At the other extreme, as Russia invaded Ukraine, the price of crude jumped to over $100, and gas prices surged to nearly $5 a gallon.

There are other reasons oil prices could drop, including worry about a recession brought on by tariffs. This has already started to hurt the Chinese economy. China is the largest importer in the world. Also, U.S. consumer confidence has collapsed, meaning GDP growth could contract as it did in the first quarter.

The average price for a gallon of regular nationwide is $3.15. That is down from $3.65 a year ago. In some states, gas prices are already well below $3. In Louisiana, Mississippi, and Oklahoma, it is at $2.70 or lower. Granted, these states have low gas taxes.

The United States may be headed toward a recession, or may already be in one. In the first quarter, gross domestic product dropped 0.3%. Most indicators for the current quarter indicate the U.S. economy continues to be weak.

The downward pressure on gas prices is substantial, and if anything is growing.

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