AAA: Labor Day signals the start of price drops at the pump

National/World

AAA forecasts the national average price at the pump will drop to $2.70 or below this fall. That is 14-cents per gallon less than Tuesday’s average price and more than a quarter cheaper than this year’s record high of $2.97 set in May.
 
“Labor Day signals the end of the summer travel season and the beginning of an autumn trend that normally leads to lower gas prices,” said Beth Mosher, director of public affairs for AAA.  “In September, gasoline demand drops and refiners switch to a cheaper-to-produce winter-blend fuel, putting downward pressure on prices at the pump. However, several outliers can reverse this forecast, including crude oil price hikes, geopolitical tensions and the threat of a hurricane.”

2018 gas prices have been significantly more expensive than 2017. In fact, the year-to-date national gas price average ($2.73) is 41-cents more than last year. In Illinois, the year-to-date average is $2.80, 43 cents more than 2017. And in Indiana, the 2018 year-to-date average is $2.74, 49 cents more than last year at this time. 
 
Trends for Year-Over-Year State Averages: 

  • The top 10 states with the largest year-over-year difference in gas price averages are mostly West Coast, Northeast or Mid-Atlantic states: California (+57 cents), Hawaii (+54 cents), Indiana (+49 cents), Arizona (+48 cents), Oregon (+46 cents), Connecticut (+45 cents), Rhode Island (+45 cents), Utah (+45 cents) and Massachusetts (+44 cents).
  • Four Great Lakes and Central and one Southern state carry the smallest year-over-year difference in gas prices: South Dakota (+37 cents), Missouri (+37 cents), Louisiana (+36 cents), Iowa (+36 cents) and Nebraska (+35 cents).

 
What Will Push Pump Prices Down this fall?

Part of the anticipated drop in fall pump prices is due to the switchover to winter-blend gasoline in mid-September. The difference between summer- and winter-blend gasolines involves the Reid Vapor Pressure (RVP) of the fuel. RVP is a measure of how easily the fuel evaporates at a given temperature. The more volatile a gasoline (higher RVP), the easier it evaporates. Winter-blend fuel, which is cheaper to produce, has a higher RVP because the fuel must be able to evaporate at low temperatures for the engine to operate properly, especially when the engine is cold.
 
In addition, the arrival of fall historically means a drop in consumer gasoline demand as fewer Americans take extended road trips, compared to the summer.
 
What Could Prevent Cheaper Gas Prices from Coming to a Pump Near You? 

Crude Market Volatility: Much of 2018 has brought volatility to the domestic and global crude markets, as market watchers try to glean insight into forces that will shape global supply this fall. These forces include: 

  • Venezuela is a major crude producer for the Western Hemisphere, but its collapsing economy could halt its crude production.
  • Organization of Petroleum Exporting Countries (OPEC) announced an increase in production over the summer, but slower-than-expected production growth could contribute to higher crude prices during the second half of the year.
  • Geopolitical uncertainty in the Middle East and around the globe could disrupt vital crude flows.

Iran Sanctions: When President Trump announced that the U.S. would withdraw from the Iran Nuclear Deal in May, the decision sent the crude markets into upheaval. In August, the first round of re-imposed sanctions on the country, which target Iran’s financial sector, went into effect and led to a brief uptick in crude prices. The next round of sanctions, currently scheduled to take effect in November, will target Iran’s energy sector – including its crude exports – and will likely have a more sustained impact on crude prices. If and when those sanctions take effect, crude prices will likely surge over an expected reduction in Iranian crude exports and increased tension in the region that could destabilize global crude flows.
 
Updated Hurricane Forecast: The National Oceanic and Atmospheric Administration’s Climate Prediction Center predicts a total of 9–13 named storms (winds of 39 mph or greater of which 4-7 will become hurricanes) including up to two major hurricanes (winds of 111 mph or greater). An average six-month hurricane season produces 12 named storms, of which six becomes hurricanes, including three major hurricanes. The mere threat of a hurricane in the U.S. would cause pump prices to spike, likely regionally, due to constrained supply and delivery challenges.
 
 

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