As the year 2024 steers toward the holiday season, American consumers already have one gift to be grateful for thanks to six months of lower fuel prices. Since midsummer of this year, all regions of the country have seen prices decline nearly 60 cents per gallon from the year’s highs at the end of April.
U.S. regions are broken down by a geographical Petroleum Administration for Defense District (PADD) with grouped states noted by the U.S. Energy Information Administration (see Figure 1). Since mid-April, the U.S. All Grades/Formulations retail gas price went from $3.50 per gallon to $3.22 on Oct. 28, and correspondent drops were seen in all PADD regions.
California, home of the nation’s highest prices at the pump, went from $5.37 to $4.49 in that period. For the Gulf State region (Alabama, Arkansas, New Mexico, Louisiana, Mississippi, New Mexico and Texas), the lowest gas price region, the price went from $3.32 down to $2.74 per gallon.
The six-month drawdown of gas prices followed a winter of high variations and volatility since November 2023. Gas prices saw significant declines from Nov. 6, 2023, into January, as the U.S. all grades/formulations average went from $3.52 to $3.18 per gallon (see Figure 2), and corresponding declines were seen in all PADDs.
Then came three months of rapid increases, influenced heavily by maintenance at several U.S. refineries that took them offline, as well as uncertainty in the Middle East from the Israel/Iran conflict.
While gas prices began a decline in spring, the U.S. consumer price index (CPI), which measures key inputs determining inflation, began its own drop from 3.4% in April down to 2.4% in September, according to the U.S. Bureau of Labor Statistics. The rate known for CPI’s transportation subindex also decreased from 276.687 points in April to 269.604 points in September.
Explaining the decline
Patrick De Haan, an oil market analyst, and co-host of the GasBuddy podcast Over a Barrel, says the drop in gas prices this summer went largely as he predicted a year ago.
“Gas prices typically don't peak in the midst of summer, but they typically peak in April or May as refineries are making the changeover to summer gasoline and as they're doing maintenance,” De Haan said. “And once that's out of the way, we generally do see prices declining through the remainder of the summer, June, July and August.
"Those declines can continue into summer and fall but extreme weather can routinely interrupt price declines with supply interruptions to the oil pipeline. That hasn’t been the case in 2024, however. Hurricanes Helene and Milton affected gas stations, but not refineries," De Haan explained.
"The Middle East conflict, specifically Iran’s conflict with Israel, also plays a potential role in future prices,” De Haan explained. “There's been headlines, but at the end of the day, Israel hasn’t attacked Iran's oil, and Iran hasn't gone full in its response. It’s kind of been a low-level back-and-forth because neither Israel nor Iran wants a broader conflict. So although the attacks have been psychologically significant, the impact on oil markets has been minimal.”
Relating back to the U.S. economy, De Haan said the interest rate cuts by the Federal Reserve this fall, paired with a slowing Chinese economy, has provided the U.S. some breathing room in economic pressure and foreign oil demand. “So a lot of the expectations have kind of panned out; we haven’t slipped into a recession.”
The election and beyond
With this week’s election now at the forefront of all attention, De Haan added that gas price dynamics are already set in motion regardless of who wins.
“The election isn't going to change the calculus,” he said. “It doesn't really matter if Trump is elected or Harris is elected. They aren't taking the oath of office until next January. But even then, I don't think either one of these candidates has really said something that is going to be so profoundly needle-moving as many Americans would be shocked to understand.”
He said both candidates have either missed points of energy policy reality or changed their tune to match the current economic picture.
Trump favors a significant boost in drilling leases in the U.S. and in offshore areas, but those promises don’t match the realities of how industry ramps up supply.
“It seems like Trump could take an economics lesson here, in that oil companies don't produce more at lower prices. They produce more at higher prices. So his suggestion that he's going to cut oil prices and we're going to drill, you know, out of this high price environment is somewhat of a farce.”
Harris, meanwhile, was more progressive in her initial 2020 campaign for president, opposing fracking in U.S. states, and has since walked that policy back for political expediency.
“So there are some signs that she's moved toward more of a centrist position.
What is certain at this point is that the U.S. remains the largest producer of oil and natural gas in the world and continues to increase that supply. Considering Russia’s invasion of Ukraine, “that’s really darn handy and probably why the Biden administration walked back some of their anti-oil and gas policies. Because now we live in an era where with the U.S. as the world’s largest oil producer, we could do more to help our friends in Europe if we produce and export more of our energy over to them instead of Russia.”
“But for now, everything's kind of gone on without much of a hit. Our expectation late last year was that right around November, gas prices were going to decline under 3 dollars and here we are just a nickel away from that.”
Looking ahead, De Haan said OPEC will likely kick the can down the road to March or April “because demand does not suddenly go up in January.”
“If people hear OPEC is delaying production increases, it will support oil prices [at current levels]. … Next spring, I do think that OPEC will eventually restore some of that production, which is going to keep downward pressure on oil.”
