Gas Prices Still Plummeting: How Low Will They Go?

December 15, 2015

Across America, the average price for a gallon of regular unleaded gasoline now hovers around $2.01 -- and as AAA reports, it's poised to dip even lower. Motorists haven't paid this little for gas since 2009.

How much lower will prices go? That depends on a few factors. Those keeping it cheap include:

1. Oversupply: The world is awash in oil these days. Even though companies have shut down drilling rigs right and left, new methods of extraction in the U.S. and continued strong production from OPEC nations have left refineries with a glut of crude on their hands. That abundance has kept gas prices low, and it will likely continue to do so going forward.

2. Increased fuel economy: On average, the fuel economy of new vehicles is improving, year after year. As automakers strive to meet ambitious 2025 efficiency targets, demand for gas could continue to drop, even with more cars on the road

3. Higher interest rates: If the Federal Reserve increases interest rates this month -- as it's widely expected to do -- the move would strengthen the American dollar. That, in turn, would make oil more expensive for foreign traders, which means they'd likely scale back their investments, either by investing less money in oil or by selling the stocks they own. Either way, the value of oil would drop, keeping prices low.

On the other hand...

1. El Nino: As you've probably heard, Planet Earth is experiencing a massive El Nino event. In fact, it was recently determined to be the biggest on record. One of El Nino's many, many effects is warmer winters across much of the U.S., and that, in turn, can encourage motorists to do more driving when they'd ordinarily be staying off the roads. If El Nino behaves as meteorologists expect, it may boost demand for gas, causing prices to edge upward.  

2. Job growth: As employment numbers continue to improve, so does commuting. That could cause demand for gas to increase, particularly in large, metropolitan areas without strong mass-transit infrastructure.

At the moment, it seems like the forces keeping gas prices low have an edge, which is good news for families on budgets, but bad news for Prius fans. We'll keep you posted as things change.

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