Gas Prices Drop 35%

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In a sign of how closely gas prices are tied to the price of crude, the average cost of a gallon of gas nationwide has dropped from $5.03 in June 2022 to $3.20 last month. Over the same period, oil prices have dropped from $113 in June 2022 to $77. Prices vary widely by state, which makes the national average misleading. In the states around the Gulf of Mexico, gas prices are about $2.25. In California, the number is $4,30. Some of the differences can be attributed to proximity to refineries. Most of the rest is due to state gas taxes.

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Where does crude go from here? There are two primary arguments. The first is that supply will be undermined by geopolitical problems, which could cause a hockey stick in crude. The most often mentioned trouble is in the Middle East, notably the Suez Canal. The last time oil prices rose rapidly was when Russia attacked Ukraine in February 2022.

US Crude Supply Strong

The other side of the argument about the direction of crude prices is one of abundance, particularly from sources inside the US. At the end of last year, the IEA reported that there would be a global oil surplus even with OPEC+ cutbacks. Parsley Ong, head of Asia energy and chemicals research at JPMorgan Chase & Co., told Bloomberg, “It revolves around the fact that US producers are fundamentally price sensitive. The higher OPEC+ keeps oil prices by reducing production, the more traditional oil producers and US shale production will respond to that and boost supply.”

Low gas prices will help drive a healthy economy in 2024. That, in turn, is a problem for those who think that interest rates will affect American GDP growth later in the year. But this is not later in the year, and gas prices are “affordable” by recent standards.