Gas Is Cheaper Than It Was A Year Ago: Are We Out Of The Woods?

April 25, 2012
gas pump

gas pump

In America today, the average cost of a gallon of regular unleaded gas is $3.84. Last year at this time, it was $3.86. And the difference in those prices could be worth more than just two cents.

According to BusinessWeek, the last time Americans saw a dip in year-over-year gas prices was in 2009 -- but then, improving on the sky-high per-gallon averages of 2008 wasn't much of a challenge. In fact, excluding the anomalies of 2008, gas has been growing steadily more expensive for several years.  

What's with the drop?

The current dip in pump prices is likely due to a variety of factors:

  • Market analysts had been worried about crude oil shortages, and those worries had driven gas prices higher. But today, refineries are humming along. According to the Wall Street Journal, plants along the Gulf Coast are receiving increased quantities of crude, and inventories at other refineries aren't as slim as once feared. In other words, there's plenty of oil on hand to convert into gasoline. 
  • Iran's vow to close the Strait of Hormuz is being forgotten. For a while, economists had feared that Iran might follow through on its threat, which would've made it more difficult to get oil out of the Middle East and into U.S. refineries. That, in turn, helped drive prices higher earlier this year. Now, it seems like Iran was probably bluffing.

In the end, the drop in gas prices should provide a shot in the arm to the U.S. economy. Cheaper gas means that it's less costly to do business, and it also leads to an increase in consumer confidence. Both represent important gains.

But will it stick?

Whether gas prices will continue to drop, we can't say.

Many analysts had predicted that gas would hit $5 a gallon this year, but although we've seen high figures in parts of the country -- even $6 in Alaska -- the national average hasn't even crossed the $4 mark. 

What we do know is that gas is more expensive during the warmer months because it's mixed with greater quantities of additives. The biggest spike in prices tends to occur in the changeover from regular gas to the summer blend, because the latter is sometimes delayed in getting to market, which leads to shortages. So in theory, we should be hitting the top of the curve right about now.

However, the highest price on record was in July of 2008 -- $4.11 for a gallon of regular -- so it's possible that prices could edge up again before the vacation season ends.

Our advice?

Keep doing what you're doing. Americans now use less gas than they have in years. We're being thoughtful about planning trips -- whether we're motoring across town or across the country. We're traveling less. We're taking mass transit. And when it comes time to buy a new car, we're buying something that guzzles a little less gas.

Keep it up, and we'll all be tapping into America's "fifth fuel": efficiency.

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