Why are gas prices down?

Date posted: July 9, 2012

It seems like the unthinkable has happened. Gas prices — after jumping in some regions to over $4 a gallon — have now dropped for several months. N.C. State University economist Mike Walden explains what’s up – or, more precisely, down — with gas prices.

“This shows you perhaps the absolute folly of trying to predict gas prices. But I think several factors have worked in the favor of drivers in pushing gas prices down recently. Number one was the conversion in refineries. Typically we see refineries move away from producing home heating oil in the spring to producing gasoline. That tends to cause them to shut down for a while. And we typically in the spring see gas prices go up a little bit to do that. That conversion’s over. So, the refineries are producing gas full throttle. That’s helping supplies and helping push prices down.

“Also, we should all pat ourselves on the back as drivers. We responded to the big jump in gas prices that we saw in the spring by driving less. And if you drive less, that sort of takes some of the pressure off high gas prices. And … I think the behavior of drivers has also caused prices to go down somewhat.

“And then lastly, and this may be the most important factor, I think a big reason why we had a big jump in the gas prices earlier this year was the fear that the war of words between Israel and Iran would turn into a war of bullets, if you will, or missiles between the two — that is, we could have a war in the Middle East that produces what we call a fear premium in oil and gas prices. Right now those fears appear to have subsided a little bit, and I think that’s taken that fear premium down.

“Now many experts — they’re all over the board — … do see a rebound in gas prices later this summer, so we should not get too comfortable right now with these relatively low prices.”

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