Gasoline costs are dropping throughout the US. Why now? Which states might hit $3 per gallon?

After the nationwide common for fuel surpassed $5 per gallon in June, U.S. drivers are finally finding some relief at the pump. However how low might costs go?

A handful of Southern states are inching nearer to $3 per gallon, and oil futures are predicting fuel beneath that in some areas. However specialists warn that the market faces components that might once more spike costs.

“There may be a bit extra reduction coming on the pump,” stated Rachel Ziemba, adjunct senior fellow on the Washington, D.C.-based assume tank Heart for a New American Safety, whose analysis space contains vitality. “It is potential that some states might get into the decrease 3s. I do not see that taking place nationally outdoors of some type of deep recession, which I would not want on us.”

How a lot does fuel value?

As of Wednesday, the nationwide common worth for fuel within the U.S. was $3.94 per gallon, in keeping with AAA. That is down 21% from $5.02 for normal unleaded on June 14, the nation’s highest common worth ever when not adjusting for inflation.

U.S. GAS PRICES: Understanding the Gas Price Rollercoaster

RENT IS THE NEW GAS: Surging rental prices become a top inflation worry. Who’s hit hardest?

Why are fuel costs falling?

AAA information reveals fuel costs within the U.S. have been slipping day by day since their mid-June peak, with most days knocking wherever between 1 and three cents off the nationwide common. As of Wednesday, AAA information confirmed the typical worth per gallon in 29 states was below $4. 

Lackluster demand among drivers and oil launched from the strategic petroleum reserve have helped ease stress on the pump, however the majority of the financial savings come from the drop in oil costs.

“About 60% of what you pay on the pump is accounted for by the worth of oil,” stated AAA spokesman Andrew Gross, who writes the group’s Monday gas report.   “That’s actually the large issue.”

West Texas Intermediate crude, the U.S. benchmark, has been buying and selling beneath $90 per barrel this week after buying and selling above $120 in June. The benchmark on Tuesday hit its lowest worth since late January, earlier than Russia invaded Ukraine.

Story continues

Gross described the oil market’s efficiency as “very headline pushed.” Fears of a global recession  – which might dampen oil demand – and indicators of an financial slowdown in China instigated drops in oil costs. A possible nuclear deal between the US and Iran that might put extra oil available on the market has additionally performed a task.

“There nonetheless are declines in oil costs that have not but totally fed by means of into the gasoline worth, so there may be a bit extra reduction coming on the pump,” Ziemba stated.

Gross famous that costs on the pump stay elevated in contrast with 2020 or pre-pandemic instances. AAA information reveals that the worth per gallon this time of 12 months was $2.17 in 2020 and $2.63 in 2019.

Will states see fuel costs beneath $3?

Wholesale gasoline futures point out fuel costs in “fairly a couple of” areas might fall below $3 round Thanksgiving and Christmas, in keeping with Tom Kloza, the worldwide head of vitality evaluation for OPIS, the Oil Worth Info Service. This contains areas in Oklahoma, Kansas and Gulf Coast states like Texas, amongst others.

However Kloza warned that 2022 is an particularly tough 12 months to make predictions.

What might trigger fuel costs to rise?

The Atlantic hurricane season – which runs from June through November – might knock oil refineries offline and drive up costs. The Nationwide Oceanic and Atmospheric Administration this month stated it nonetheless expects an “above normal” hurricane season.

“Hurricane season is the type of a skunk on the social gathering,” Gross stated.

There’s additionally the potential for disruptions from Ukraine’s struggle with Russia, which is among the top oil producers in the world.

What states have the most affordable fuel?

The states with the bottom common common fuel costs as of Wednesday, per AAA:

• Mississippi: $3.49

• Georgia: $3.49

• Tennessee: $3.48

• Texas: $3.46

• Arkansas: $3.45

What states have the costliest fuel?

The states with the best common common fuel costs as of Wednesday, per AAA:

• Hawaii: $5.35

• California: $5.34

• Nevada: $4.93  

• Alaska: $4.90

• Oregon: $4.85

WHY ARE GAS PRICES HIGHER IN CALIFORNIA? Gas experts break down costs from state to state

WILL GAS PRICES CONTINUE TO FALL? Gas prices drop under $4 nationwide for first time in months

You’ll be able to observe USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for private finance suggestions and enterprise information each Monday by means of Friday.

This text initially appeared on USA TODAY: Here’s why gas prices are dropping. Is $3 per gallon possible?