Gas Prices To Remain Low Through Spring

Last updated on Wednesday, December 17, 2014

(UNDATED) - Plummeting gasoline prices over the past couple of months are expected to remain low through at least the spring, signaling generally good fortunes for the nation’s economy, says Purdue University Energy Economist Wally Tyner.

The national average price for regular unleaded gasoline was $2.61 per gallon as of Dec. 12. That is 59 cents lower than a year ago. Indiana prices were averaging about $2.52, with some areas even lower, averaging $2.32.

How much more prices will fall is difficult to predict; it will depend on the cost of a barrel of crude oil. Running about $105 for the past couple of years, it was below $59 last week.

He noted that crude oil prices have fallen $45 over the past few months - enough to increase the U.S. gross domestic product about 1 percent. That is significant considering - the value of the nation's goods and services - is increasing by a rate of 3 percent annually.

Tyner says crude oil prices have fallen to the point that the oil industry, including exploration companies, will be cutting their investment budgets for 2015, likely leading to some job losses in that industry. Still, he expects that refining will continue to be profitable.

Gasoline prices have been falling primarily for several reasons:

OPEC decided in late November not to cut production, a decision that sent crude oil prices tumbling further.
U.S. crude oil production has increased by 1 million barrels per day in each of the past three years.
Production also has increased in North Africa and the Middle East. "Libya, for example, is now producing a lot more, but it is not clear how long that will last," Tyner says.
While the U.S. economy is doing well, the economies of the rest of the world are not. Europe and Japan are growing at less than 1 percent per year, and China and India are growing more slowly than normal. Russia is in recession.

Tyner says that because oil demand is driven by economic growth, when the growth slows so does global demand for crude oil and products - a combination of slow growth in demand and the rapid growth in supply that has led to the current plunge in oil and gasoline prices.

The wild card to gasoline prices always is the element of the unforeseen, such as an unexpected interruption of supply from a disaster or world events. There is no planned maintenance at refineries that would reduce output for the rest of 2014.

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