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Gas prices are falling. Here’s why and how long low prices can last.


Gasoline prices are falling so fast that, ignoring previous predictions, it’s starting to put real money in drivers’ pockets, providing an unexpected holiday gift.

Refueling is now as cheap as it was in February, before Russia’s intervention in Ukraine touched off the global energy crisis. AAA reported a regular Wednesday national average of $3.50 a gallon, and gas price tracker GasBuddy predicted it would drop below $3 by Christmas. And all that relaxation likely contributed to strong shopping over the Thanksgiving weekend.

“People are realizing that they’re going to spend $50 instead of $80 to fill their tank,” said Emma Rasiel, an economics professor at Duke University. “It is the main signal that consumers pay attention to regarding inflation. It’s something they can track how much it goes up or down because they have to fill up their car every week.

But Rasiel warned that cheaper gas could give consumers the wrong idea. The prices of other goods and services are less volatile, and there is no sign that this moment of cheaper fuel is driving down the prices of other things.

While the drop in prices at the pump is helping fuel the national holiday shopping frenzy, it’s also a reflection of the financial stress facing consumers and businesses around the world. Prices are falling as demand for oil and gas declines as countries prepare for recession and the spread of the coronavirus. A major financial crisis threatens China, and drivers are cutting back on gas as they try to save money to cover rising mortgage payments and stock market losses.

Concerns that earlier sanctions on Russian oil would create supply shortages and push prices higher toward the end of the year have given way, at least for now, to ailing economies and jittery financial markets.

Ben Cahill, an energy security analyst at the Center for Strategic and International Studies, said: “We are headed for a serious recession in Europe and a further economic slowdown in the United States as people struggle with high interest rates and worry about their personal wealth and savings.” “Add it all up and it paints a bleak picture for oil demand. The prices also show this.”

Also, some major U.S. refineries, which have helped keep prices low for now, have returned to shutting down gasoline after months of shutdowns for maintenance and repairs.

But the turmoil in China is also a big factor. A looming economic downturn has weighed on oil traders, touching off protests across the country as its leaders signal that new coronavirus lockdowns are imminent.

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According to the research company Capital Economics, which predicts that oil purchases will decrease by 1 million barrels per day in December due to the spread of the coronavirus infection, China alone accounted for 16 percent of global oil demand last year. Such a decline has an impact on global oil markets significantly, the price of Brent oil fell to $10 a barrel, or more than 10 percent.

“With record-high COVID cases in China and the threat of a large-scale lockdown there, the key question is how much demand can fall and free up supply for the rest of the world,” said Edward Gardner, commodities economist at Capital Economics. wrote in a research note.

While high gasoline prices have been a major factor in the crippling inflation that has hit the U.S. and other countries for much of the past year, falling fuel prices have done little to stabilize the economy. Analysts say producers who rely heavily on the fuel should see months of sustained low prices before they can adjust the costs of the products they sell. In some areas of the country, drivers benefit more than others. Californians still pay an average of about $5 for a gallon of regular.

“It’s a pretty subtle price pull together,” said Patrick De Haan, head of oil analysis at GasBuddy, noting that any number of geopolitical or economic events could cause prices to rise again.

There are other big factors clouding the price forecast. The US and Europe are negotiating a price cap on Russian oil that will come into force on Monday. The plan is to allow Russian oil to continue flowing into global markets, but at prices that limit the profits the Kremlin can use to maintain its war machine.

Such a price cap has never been imposed on a major oil-producing country, and it threatens to cause further instability. If the threshold is set too low, as advocated by some European countries, Moscow could cut off supplies and cause global price increases.

Another wild card is the OPEC Plus consortium of oil producers, which meets next week to consider how much oil its members should continue pumping in the coming months. The group may decide to cut production to raise prices.

“The OPEC meeting could be a skunk at a picnic,” AAA spokesman Andrew Gross said. “It’s hard to try to predict what they’re going to do.”

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Those are the things that worry John Katsimatidis, who owns hundreds of gas stations and refineries, but not because they might affect his fuel business. When the businessman talks about gas prices, he’s more focused on what it could mean for another business in his multibillion-dollar real estate development empire.

Rising borrowing costs have made that venture even more difficult. He said a six-month run of $3 gas could help curb inflation and signal the Federal Reserve is safe to ease its rate hikes.

“If we lower the rate and it stays there, we can solve the inflation problem and the Fed can stop raising interest rates and putting everyone out of work,” Catsimatidis said.

One thing that is clear is that there is little that leaders in Washington can do to lower gas prices. They are at the mercy of global markets.

The Biden administration is apparently pressuring Saudi Arabia, which dominates OPEC Plus, not to cut production. But the administration’s lack of influence over such things was evident at OPEC Plus’ last meeting in October, when the group rejected Washington’s demand to cut production by 2 million barrels a day instead of increasing it.

Last week, the administration eased sanctions on Venezuela as part of an effort to get oil back out of the country. But it will be months before Venezuelan oil is shipped, and initially only marginal quantities will be available.

Most drivers pay little attention to the broader dynamics of the global oil market. But even as they splurge on holiday gifts, they are cautious.

Data collected by AAA shows that when gas is over $5 a gallon, they stick to the more frugal driving habits adopted, putting more errands on solo car trips, driving at slower speeds, and only partially filling their gas tanks. Prices may have dropped, but drivers are not taking their foot off the brakes.

It’s also very evident in the consumer outlook, which improves when gas prices fall. But the University of Michigan’s Consumer Sentiment Index suggests that this streak of cheap gas is being overshadowed by other financial problems plaguing Americans. Although gas prices fell, a national survey showed that consumer anxiety increased in November.

“Even though gas prices are down, prices for other things are still high,” said Joanne Hsu, who directs consumer surveys at the university. “There is a great sense of uncertainty.”

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