Gasoline prices have fallen sharply since Election Day, but the news behind that price drop at the pump isn't exactly great.
The cost of gasoline is falling so fast that it is beginning to put real money back in the pockets of drivers, defying earlier projections and offering an unexpected gift for the holidays.
Filling up is now as cheap as it was in February, just before Russia’s invasion of Ukraine touched off a global energy crisis. AAA reported the average nationwide price of a gallon of regular Wednesday was $3.50, and gas price tracking company GasBuddy projected it could drop below $3 by Christmas. And all of that relief probably helped drive robust shopping over Thanksgiving weekend.
“People are realizing that they might be back to spending $50 to fill their tank instead of $80,” said Emma Rasiel, a professor of economics at Duke University. “It is the main signal consumers notice on inflation. It is the one thing they are likely to track, how much it has gone up or down, because every week they need to fill up their car.”
But Rasiel cautioned that less-expensive gas can also give consumers the wrong idea. Prices of other goods and services are much less volatile, and there is no indication that this moment of more-affordable fuel is pushing the cost of other things down.
Even as the plunge in prices at the pump helps fuel a national holiday shopping spree, it is a reflection of the financial strain consumers and businesses are confronting worldwide. Prices are going down because demand for oil and gas is falling as countries brace for recession, coronavirus outbreaks in China threaten major financial disruption and drivers cut back on gas-guzzling as they try to save money to cover skyrocketing mortgage payments and stock market losses.
Earlier worries that sanctions on Russian oil would create a shortage in supply and send prices soaring toward the end of the year have, for now at least, given way to ailing economies and jittery financial markets.
“We’re heading into serious recession in Europe and further economic slowdown in the U.S. as people struggle with high interest rates and worry about their personal wealth and savings,” said Ben Cahill, an energy security analyst at the Center for Strategic and International Studies. “Add it all up and it creates a bleak picture for oil demand. Prices are reflecting that.”
Also helping keep prices low at the moment are some key U.S. oil refineries that returned to churning out gasoline after months of being out of commission for maintenance and repairs.
But just as big a factor is the turmoil in China. As its leaders signal that new coronavirus lockdowns are imminent, touching off protests throughout the country, the expected economic fallout has turned oil traders bearish.
China alone accounted for 16 percent of global oil demand last year, according to the research firm Capital Economics, which projects its purchase of oil will drop by 1 million barrels per day in December as coronavirus infections spread. The effect of such a drop on global oil markets is considerable, reducing the price of Brent crude by as much as $10 a barrel, or more than 10 percent.
So the Russian oil doomsday scenario hasn't come to pass quite yet, but the global economy is headed for some bad times in 2023. How hard the landing is going to be is still up in the air, but at least gas prices are headed back under $3 for a while.
Diesel out here in the Midwest is still $4.50-$5 a gallon though, so that's still costing consumers more at checkout. Still, gas prices here in KY are below $3 in several counties.
Beshear also applauds gas prices dropping across the state. ^AH pic.twitter.com/OkQuwvG56l— Bluegrass Politics (@BGPolitics) December 1, 2022
We'll see what the Fed decides to do with interest rates later this month.