Summer surprise: Lower gas prices
Wells Fargo Investment Institute’s John LaForge explains why the 2019 summer travel season has lower-than-expected gas prices.
Alison Troxell had budgeted carefully for her long-awaited weekend trip rafting on the Kennebec River in The Forks, Maine — including the cost of a tank of gas.
So she was pleasantly surprised when the 300-mile round trip from Portland, Maine, in her new automobile wound up costing less than expected.
“I had not thought too much about the change in gas prices since last summer, but have been grateful that gas prices have stayed below $3 for most of the year,” Troxell said. “It seems like gas prices were maybe 20 cents higher last summer, so I may be saving about $4 a tank this summer. Based on my travel plans and driving, I could save around $40. That could mean an extra dinner out.”
“It seems like gas prices were maybe 20 cents higher last summer, so I may be saving about $4 a tank this summer. Based on my travel plans and driving, I could save around $40. That could mean an extra dinner out.” — Alison Troxell
Troxell isn’t alone in her gas savings this summer. Strong global demand and limited supply drove prices higher during the 2018 summer travel season — averaging between $2.85 and $3.05 per gallon, according to AAA — but it’s a different story in 2019.
The average price per gallon nationally for regular unleaded gas was $2.79 this summer on July 17, for example — 7 cents cheaper per gallon than July 17, 2018.
John LaForge, head of real assets strategy for Wells Fargo Investment Institute and author of the report “When Gasoline Prices Matter,” said weakening global demand, growing oil supplies, and the U.S.’s lessening reliance on Middle East oil all factor into lower prices at the pump.
“In the last few months, the price of oil has gone from high $60s to the low $50s a barrel — a 24% move down — and that usually translates down to lower gas prices.” — John LaForge
“In the last few months,” said LaForge, “the price of oil has gone from high $60s to the low $50s a barrel — a 24% move down — and that usually translates down to lower gas prices.
“The world’s growth is slowing a little bit — GDP growth globally was 3.5% this time last year, and about 3% now — and when that happens it means countries need and buy less oil,” he said.
Troxell, who traded in a smaller, more fuel-efficient car for a more comfortable and safe automobile, said gas prices would have to increase significantly to alter her driving habits.
“I would not notice a big change unless gas went into the $3.50-a-gallon range,” she said. “Then I’d most likely limit any excess driving or question long-distance day trips that weren’t necessary.”
Since oil is a commodity, LaForge said, its price (and the price of gasoline, diesel, and other products made from oil) change often.
“Oil prices are pure supply and demand,” he said. “That’s why they often fluctuate and can be quite volatile. We still expect, on average, that drivers will see lower prices this summer than last year. Consumers should be pretty happy when they pull up to the pump.”
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