Cheap gas is here to stay

Enjoying a break at the gas pump this summer? Right when we usually expect prices to rise in response to summer vacation driving, gas prices are falling. And the good news is that this fortuitous trend is likely to continue as we head into Labor Day.

According to AAA, the national average price for unleaded regular is $2.13 per gallon, a 20 percent decline cheap jerseys from one year ago and the lowest level for the month of July since 2004. Fourteen states now boast average prices below $2, including Tennessee.

Ordinarily, increased demand from motorists embarking on summer vacation and a more expensive blend of http://www.cheapjerseys11.com/ motor fuels aimed at reducing ozone production combine to spike the cost of gas during the peak driving season. Energy Information Agency expects a 2.3 percent increase in miles driven this year. So why are gas prices falling instead?

Perhaps most importantly, oil prices are falling again. Crude oil as a raw material represents a little less than half the total cost of a gallon of gas (taxes, refining and marketing make up the rest). We often complain as gas prices rise with higher crude, but it really does work both ways. Oil has fallen by 22 percent over the past few weeks, hovering near $40 per barrel as global supplies continue to outstrip demand. And given the recent nominal increase in drilling rigs operating in North America, crude prices could continue to slide another few bucks lower by Labor Day. New technologies in oil extraction have made the United States a major player once again and marginalized the OPEC cartel ability to materially impact global supplies and prices. Remember $150 oil? Probably won see that again for a very long time.

Finally, an important and often overlooked factor is the refining side. Crude oil must be processed into usable products like gasoline, jet fuel, diesel and asphalt. Gasoline prices are very much affected by refinery capacity and inventory fluctuations during periods of heavy demand. Typically during the summer driving period, at least one major Gulf hurricane causes refineries to shut down for a period of time, and then affect repairs to resume operations. So far, weather this year has been mild and refineries have been running wide open. As a result, inventories of both gasoline and crude oil are near 20 year highs, more than enough to offset the increase in demand from vacation drivers.

The continued decline has put a major squeeze on profit margins of refining companies, but consumers are loving it. Prices for unleaded regular that averaged around $3.70 per gallon during July of 2013 are down by 40 percent, so families are enjoying a few extra dollars in their pockets as they head for Orlando this year. And given current production and inventory levels, it appears that the news for motorists may get even better in the weeks ahead.