A visible symbol of inflation for much of the year, prices at the pump have been driven down by reduced global demand and tumbling oil prices.
After months in which gasoline prices in the United States have been one of the most visible symbols of inflation, they have a new distinction: Prices at the pump are now lower than they were a year ago.
The reversal of the price escalation that accompanied Russia’s invasion of Ukraine will ease pressure on American consumers dealing with the high cost of other essentials.
The drop in gasoline prices was led by a decline in worldwide energy demand, which drove oil prices lower. The national average price for regular gasoline stood at $3.33 a gallon on Thursday, according to AAA. A year ago, the average price at the pump was $3.34.
At their peak, gasoline prices were just over $5 a gallon in mid-June. The price of West Texas Intermediate crude oil, the U.S. benchmark that serves as the main driver of gas prices, on Thursday fell to its lowest level of the year, crossing below $72 per barrel, after trading above $120 in March and June.
The drop is a political boon for the Biden administration, which has been drawing down the nation’s Strategic Petroleum Reserve since the spring in an effort to keep prices contained.
Although gasoline prices have fallen from recent peaks, they are still higher than they were throughout the past several years. Along with elevated oil and natural gas prices, this has powered a series of record-breaking quarterly profits at energy companies like Exxon Mobil and Chevron. The net income of global oil and gas producers is set to double this year, to an “unprecedented” $4 trillion, the International Energy Agency said in a recent report.
President Biden has criticized energy companies for “profiteering” and threatened them with a new windfall profits tax, a policy already in place in some other parts of the world, unless they increased production. His administration has been highlighting the price declines on social media.
Falling gasoline prices may be welcome news for the Federal Reserve, too, as it tries to curb inflation by raising interest rates and slowing down the economy. Still, the economic implications could be complicated. As consumers spend less on gasoline, they have more cash for other purchases.
“It’s good for households and it’s good for affordability,” said Beth Ann Bovino, the U.S. chief economist at the financial analysis firm S&P Global. “But at the same time the easing up of pricing pressure at the gas pump leaves more money to spend elsewhere, that might give a near-term boost to inflation, which the Fed would have to fight.”
The gasoline price trend has not been matched by diesel, a fuel essential to industry, agriculture and transporting goods. U.S. diesel prices have fallen in recent weeks, but are roughly 40 percent higher than a year ago, partly because of disruptions to Europe’s supplies.
While the decline in gasoline prices has been widely felt, some states still have prices well above the national average. In California, which has high gasoline taxes and rigorous emissions standards that increase the cost of refining, the average price of regular gasoline was $4.62 a gallon on Thursday, down from $6.44 in June. In several Southern and Midwestern states, however, prices are below $3 a gallon, mainly because they have minimal gasoline taxes, if any, and demand is lower in rural areas, according to Devin Gladden, an AAA spokesman.
Global oil prices account for more than half the cost of gasoline. The prices of both West Texas Intermediate and Brent crude, the global benchmark, have fallen more than 20 percent since late August, as Covid-19 lockdowns in China reduced demand.
AAA expects gasoline prices to continue to decline through the end of the month, Mr. Gladden said, partly because winter-blend gasoline has fewer environmental restrictions, making it cheaper to produce.
But U.S. gasoline prices frequently decline in December before rising in January. And factors beyond the United States — including the Ukraine war and the decelerating world economy — make the outlook for the new year uncertain.
“We just have to continue watching oil prices because they remain volatile and as we saw in the spring, if oil prices spike to $100 per barrel, gas prices will follow suit,” he said. “A lot will depend on how the geopolitical tension continues to unfold throughout the winter.”
A further easing of China’s pandemic restrictions, for example, could prompt a rise in demand that would drive up oil prices. On Wednesday, the Chinese government loosened some of its rules after protests against its “zero Covid” policy.
A drop in oil supplies could also push prices up. OPEC and its allies, including Russia, trimmed production in October, and affirmed these targets at a meeting on Sunday. An embargo on Russian oil imports by the European Union also took effect this week, as did an elaborate plan to cap the price of Russian oil, led by the Group of 7 industrial nations.
“We think the market may be underestimating Russia’s resolve to reduce output and exports in response to the E.U. embargo and the price cap,” said Tatiana Orlova, the lead economist at Oxford Economics, noting that oil prices were likely to rise in the coming weeks if Russian exports were to fall.
“The stage is set for a spike in oil prices,” said Bryan Benoit, the U.S. national managing partner of energy at the accounting firm Grant Thornton.
Clifford Krauss and Jason Karaian contributed reporting.
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