Menu

Gasoline Prices Could Continue to Fall

How low can they go?

We’re talking gas prices here.

Plummeting gasoline prices over the past couple of months are expected to remain low through at least the spring, signaling generally good fortunes for the nation’s economy, said Purdue University energy economist Wally Tyner.

The national average price for regular unleaded gasoline was $2.61 per gallon as of Dec. 12. That is 59 cents lower than a year ago. Indiana prices were averaging about $2.52, and prices in the Lafayette area were even lower, averaging $2.32.

How much more prices will fall is difficult to predict; it will depend on the cost of a barrel of crude oil. Running about $105 for the past couple of years, it was below $59 last week.

“And it is likely to go even lower,” Tyner said. “On balance, this decrease in gasoline prices is quite good for the economy.”

He noted that crude oil prices have fallen $45 over the past few months – enough to increase the U.S. gross domestic product about 1 percent. That is significant considering the GDP – the value of the nation’s goods and services – is increasing by a rate of 3 percent annually.

“That’s a huge boost to the economy,” Tyner said. “It is providing consumers extra income they can spend on other goods and services, which stimulates the economy.”

On the other hand, Tyner said crude oil prices have fallen to the point that the oil industry, including exploration companies, will be cutting their investment budgets for 2015, likely leading to some job losses in that industry. Still, he expects that refining will continue to be profitable.

Gasoline prices have been falling primarily for several reasons:

  • OPEC decided in late November not to cut production, a decision that sent crude oil prices tumbling further.
  • U.S. crude oil production has increased by 1 million barrels per day in each of the past three years, Tyner said. “This U.S. supply increase is a major part of the current price story.”
  • Production also has increased in North Africa and the Middle East. “Libya, for example, is now producing a lot more, but it is not clear how long that will last,” Tyner said.
  • While the U.S. economy is doing well, the economies of the rest of the world are not. Europe and Japan are growing at less than 1 percent per year, and China and India are growing more slowly than normal. Russia is in recession. Tyner said that because oil demand is driven by economic growth, when the growth slows so does global demand for crude oil and products.

“So it is the combination of slow growth in demand and the rapid growth in supply that has led to the current plunge in oil and gasoline prices,” Tyner said.

The wild card to gasoline prices always is the element of the unforeseen, such as an unexpected interruption of supply from a disaster or world events. Tyner said there is no planned maintenance at refineries that would reduce output for the rest of 2014.

Source: Keith Robinson and Wally Tyner, Purdue University 

Recent News

Managing Nitrogen for Corn in 2020
3/25/2020

As was the case a year ago, there have been limited opportunities to apply nitrogen fertilizer since last fall. Rainfall in Illinois through the first three weeks of March has been at or above average, and temperatures have been a few degrees above normal. Soils remain wet, and there is little in the current weather […]

Time Has Run Out for EPA to Appeal 10th Circuit Biofuels Ruling
3/25/2020

Reuters writer Richard Valdmanis reported on Wednesday that, “Time has run out for the U.S. Environmental Protection Agency to challenge a federal court ruling that would limit the agency’s use of waivers exempting small oil refineries from the country’s biofuels regulations. Todd Neeley@toddneeleyDTN  The DOJ did not file an appeal with the 10th Circuit before the court deadline on the […]

Management of Defoliating Insects in Nebraska Soybeans
3/24/2020

Many defoliating insects may be found in Nebraska soybeans. Estimating defoliation levels in fields is the best way to decide whether it will pay to treat for these insects. We saw several different insects in parts of Nebraska causing defoliation in soybeans in 2019. These included: woolly bear caterpillars green cloverworms grassshoppers bean leaf beetles […]

Your browser is out-of-date!

Update your browser to view this website correctly. Update my browser now