Crude Oil Price Drop Won’t Help at the Gas Station

Man holding wallet looks at gas pump total
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If you’re hoping the recent decline in oil prices to a seven-week low will bring relief at the gas pump, think again. The price of gasoline has come down by just pennies in recent weeks, and it’s unlikely to go much lower, experts said.

Key Takeaways

  • Oil prices fell to a seven-week low but don’t expect that to translate into lower gas prices any time soon, experts said.
  • Though gas prices move up quickly when oil prices rise, they lag on the way down.
  • Oil prices need to drop further and stay down longer, likely the outcome additional production could bring, before consumers can see relief at the pump, analysts said.

Higher oil prices usually lead to a quick rise in the price of gasoline because oil is its main component (about 70%). For example, when the price for a barrel of West Texas Intermediate crude oil, a grade of crude oil used as a benchmark in U.S. oil pricing, hit a seven-year high at $85.64 last month, the national average price for regular unleaded gas rose about 20 cents per gallon.

But it doesn’t work the same way in the other direction. Gas prices lag oil prices on the way down. So although oil has fallen recently—closing on Friday at $76.11, the lowest since Oct. 1—the price of gas has barely moved. So far this month, the national average has been between $3.40 and $3.42, still around the highest level since September 2014.

The reasons for the drop in oil prices were expectations that fresh supply from China and the U.S. would hit the market soon and fears of another COVID-19 lockdown in Europe that would slow economic growth. 

For the price of oil to make any dent in your tab at the gas station, it would have to tumble closer to $70 per barrel and stay there awhile, said Andrew Gross, a spokesperson for AAA. But he and other analysts say that’s unlikely.

“The recent drop in oil prices might only be temporary,” said Edward Moya, senior markets analyst for the Americas at OANDA, in an email. “Prices at the pump will unfortunately remain elevated until we know if this will be a cold winter.”

If we’re lucky and the winter is mild, demand for heating oil would be relatively low and help keep a lid on oil prices. But most analysts agree the key to a long-lasting decline in oil prices is far greater supply. 

“We will probably see $80 oil for much of next year,” Moya said. “The consumer will only start to see lower prices when OPEC+ signals they will ramp up production.”  OPEC+ includes the 13 oil-exporting developing nations that make up the Organization of the Petroleum Exporting Countries plus 10 non-OPEC oil-producing countries, including Russia. So far, OPEC+ has resisted calls to increase production.

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