Categorized | Commodities

U.S. Gasoline Prices May Decrease

U.S. gasoline prices might decrease over the next couple of years due to a boost in domestic oil production. Over the past two years, oil produced in the U.S. has picked up more so than in recent years and may be causing an oversupply of crude oil. For consumers a lower price per barrel will eventually lower prices at the pump giving the American drivers a bit of a break on energy costs. So why is this happening?

Boosting Domestic Oil Productiongasoline

Domestic oil production started to fall in the mid 1980’s and stayed that way for almost two decades. Due to the lull in domestic production, the U.S. became ever more dependent on foreign oil producing nations to supply and feed to growing demand for crude oil. However, since 2008 more of the U.S. oil drilling companies and refineries have stepped up oil production. As early as 2012 the first real spike in domestic oil production occurred producing an over abundance of crude oil has begun to stockpile on America’s Gulf Coast. Many consumers have not yet felt the presence of an oversupply of crude oil and that is primarily due the fact that prices in the U.S. are largely dictated by speculation. For the last twenty years the American gas prices have been inflated due to the understanding of an increasingly high demand for energy and the understanding of a shortage of crude oil. However, U.S. oil refineries are operating currently at full capacity with the price of oil at $100 dollars per barrel. This equates out to the national average per gallon of regular gas at just about $3.68.

Over the past two years the cost of gasoline per gallon has fluctuated between $3.70 and $3.30. It has become ever more increasingly difficult to gauge or predict how oil prices will go, either up or down. Many experts are in constant debate about the future cost of oil due to subsiding demands, overages and shortages, as well as the new techniques being used to produce more oil. What is certain, is that there is new theories by top leading experts about the oversupply of crude oil in the U.S. Even Citibank’s top analyst for oil believes that by the end of 2015, the U.S. will see a drop in the cost per barrel of crude oil, said to drop from $100 per barrel to as low as $75 per barrel. The drop in cost per barrel, according to the Citibank analyst believes that the price to be reflected to consumers at the pump would level off at about $3.00 per gallon, if there was even a $10 swing should price per barrel drop to $85 per barrel.

gasoline 2Why is there a Surplus?

Other than the already stated boost in domestic production, U.S. consumers are buying less gas. The economy has yet to see or feel much recovery nationwide. That being said, the renovation by car manufactures in fuel consumption and U.S. consumers shifting gears by buying more fuel sipping cars has all contributed to a lower U.S. demand for gasoline. International factors are also playing a significant role in the demand for oil worldwide. The U.S. may be the top consumer of oil globally, but only with China in a close second. The Chinese economy has been slowing down and so with that economic shift, the demand for oil has begun to decrease as well. The overall demand for oil has been softening since the spike in U.S. production in 2012. There is also talk circulating around about possibly ending the ban on U.S. oil exports which would help to lower the price of gasoline not only worldwide, but within the country as well. Just as the economy is based on a free market society, the cost of gasoline would continue to drop because it would give overseas drillers the ability and incentive to drill for competitive pricing. What is more, is that American consumers would almost immediately feel the recovery of spending at the pump which has strangled many people’s ability to properly save on fuel costs. If the hurting economy and high oil prices have taught the American consumer anything, it is the desire for motorized freedom at a reasonable price for fuel and fuel consumption.

Should the price of oil continue to drop, the American consumer will be aided for the first time in almost two decades in lower energy costs. In a twist, speculators that are gambling on higher prices will be trapped. A boost in domestic production and an decrease in overall demand for oil may have finally hit the climax, and consumers might be feeling that economic recovery a little sooner than anticipated. In any case, the next couple of years will be exciting. More fuel efficient cars, hybrids and fuel cell cars and an increase in smart fuel consumption may finally be the change and relief desired by all for the last few years.



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