American drivers are within shouting distance of $1.50 a gallon for the first time since 2009.
Thanks to a glut of oil that has spurred refiners to make as much fuel as they can, pump prices nationwide are down about 23¢ a gallon from a year ago, which is translating into almost $80mn a day in savings for US drivers, according to Michael Green, a spokesman in Washington for AAA.
Oklahoma has the cheapest prices in the country at $1.519 a gallon, almost 30¢ below the national average, AAA data show.
US prices may fall as low as the $1.60s in the next month before rebounding, according to Patrick DeHaan, a Chicago-based senior petroleum analyst at GasBuddy Organisation, which tracks filling station prices. “Demand is very weak because of the time of year and supplies are the highest in a very long time.”
Consumers are benefiting from a 68% drop in West Texas Intermediate crude over the past 19 months that has boosted refiners’ profit margins, encouraging them to produce record amounts of fuel. WTI dropped to $26.19 a barrel on January 20, the lowest since May 2003.
The average price of regular gasoline nationwide was $1.813 a gallon on Thursday, the lowest since January 2009, according to Heathrow, Florida-based AAA, a national federation of motor clubs. Prices reached a record $4.114 in July 2008. Gasoline futures touched 99.24¢ a gallon on Wednesday, the lowest in seven years.
Americans drove a record number of miles through the first 11 months of the year as companies hired workers and fuel prices sank. Gasoline averaged 94¢ a gallon less in 2015 than the prior year and the US unemployment rate fell to the lowest since 2008.
“Lower gasoline prices give consumer sentiment a boost,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The drop in pump prices gives the consumer a little more discretionary income to be spent elsewhere.”
Ample supplies have protected against price shocks. Gasoline inventories at 248.5mn barrels as of January 22 were the highest since 1990.
“Oil supply is very healthy and that’s trickled down to gasoline inventories,” DeHaan said.
Gasoline prices should reach their seasonal low in the next month, according to DeHaan and Tim Evans, an energy analyst at Citi Futures Perspective in New York. Refineries will shut for work, reducing supply, and tighter environmental regulations make gasoline sold in spring and summer more expensive to produce.
Refiners are starting to take units offline already. Plants operated at 87.4% of capacity last week, the lowest since October, according to the EIA. Operations have dropped during the first quarter in eight of the past 10 years.
Even after the seasonal gain, prices should remain lower than in previous years, Lynch said. US gasoline consumption typically peaks and prices climb between the Memorial Day holiday in late May and Labor Day in early September, when Americans traditionally take vacations.
“Prices are going to remain low going into summer,” said Lynch. “There will be a lot of happy drivers heading to the beach and Disneyland this summer. We’ll be enjoying historically low prices for a long time.”