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Near Record Low Gas Prices This Thanksgiving

Fuel truck

Happy Thanksgiving! To make it a little happier, the EIA reported on November 23 that gas prices in the U.S. for this year’s holiday average $2.16 per gallon. That’s the second-lowest price per gallon since 2008, when prices had fallen to $1.86 per gallon. Over the continental United States, prices range from a low of $1.88 in Houston TX (where prices are traditionally the lowest in the country) to $2.76 in Los Angeles (where they are usually high).

Domestic gas prices are the best bellwether of the general state of energy consumption for the average American consumer, and with oil prices still hovering below $50 and likely to stay there, OPEC production freezes notwithstanding, the EIA anticipates gas prices will remain depressed for at least the next two years. While prices are set to fall somewhat over the winter months, the EIA’s short-term outlook in nearly November predicts prices in 2016 to average $2.13 per gallon in 2016 overall, and to average $2.27 in 2017. These figures may be even lower if the U.S. continues to accumulate higher than expected gasoline inventories, as has been the trend over the last several months.

The fall in gas prices has been strongly correlated with the fall in crude oil prices since July 2014. When oil was fetching more than $100 per barrel, the price of domestic gasoline hovered above $3.50 per gallon, according to the EIA. When the crude price began crashing in the latter half of 2014, gas fell with it, reaching $2.15 by January 2015. Apart from a bounce in the Summer of 2015, when prices reached $2.80, the price of domestic gasoline has remained between $2 and $2.50 since the beginning of 2015.

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Growth in gasoline consumption used to be a fairly accurate indicator of growth in the U.S. economy, but improving fuel economy standards and concerns over the environmental impact of fossil fuels stalled the increase in gasoline consumption; a sluggish and uneven American economic recovery after the deep recession of 2008-2009 didn’t help either. In the years after 2009, while gasoline consumption rose, it did so sporadically. Recently, however, the increase in gasoline consumption has been more robust, with record figures measured during 2016.

API reported total gasoline deliveries in October 2016 to be up .2 percent from the year before, reaching 9.3 million barrels per day. Retail sales of gasoline by refiners has fallen from a peak of 66 million gallons a day in 2003 and is now less than 27 million gallons a day, according to the EIA.

Gasoline consumption in the US broke records in August 2016, reaching 9.7 million barrels a day. That came as a surprise for some, as US gasoline consumption had declined in the wake of the recession. But depressed prices and the slow economic recovery has brought consumption back up again, albeit more slowly than under normal conditions: increased fuel efficiency has eaten into the total rise in consumption.

The EIA reported that during the Summer of 2016, while gasoline consumption rose by 1.5 percent (roughly equal with the increase in 2015), total miles driven increased by 3 percent. People are now able to drive farther on less gas, a further encouragement to consumption, along with low prices and an improving economy. Fuel economy standards have improved by about 28 percent since 2000.

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Globally, it’s possible increased fuel efficiency and a shift towards electric cars may depress gasoline demand. The IEA estimates that demand growth in personal transportation will stall over the next twenty-five years, along with internal heating and power generation.

The IEA estimates that gasoline demand will drop to 22.8 million barrels a day by 2020, down from 23 million barrels a day last year. By 2030, consumption will increase, reaching a peak of 23.1 million barrels a day, before declining again by 2040. So, while gasoline may be recovering in the United States, globally it may be in for some trouble.

It’s possible that the IEA figures exaggerates the impact of electric cars, improved efficiency and increased use of biofuels. The IEA report for 2016 is considerably more pessimistic than its report from 2015, when it estimated gasoline demand to remain strong until 2030.

Yet American consumers can take heart, as prices remain low this holiday season. This should be welcome news: more Americans travel over Thanksgiving than at any other time of year. Happy driving, everyone.

By Gregory Brew for Oilprice.com

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