According to a press release from AAA, most U.S. drivers will pay the lowest gas prices since 2004 for the busy Labor Day weekend. The national average price of gas is $2.44 per gallon, which is 99 cents per gallon less than a year ago. U.S. consumers should save more than $1 billion on gasoline over the holiday weekend compared to 2014, with many drivers saving about $15-$25 on every trip to the gas station.
"Americans should find good deals on gas prices in most parts of the country heading into the busy Labor Day weekend," said Avery Ash, AAA spokesman. "It is unbelievable that drivers are ending their summer vacations with the lowest gas prices for this time of year in more than a decade."
Average U.S. gas prices have dropped about 37 cents per gallon since hitting a 2015 peak price of $2.80 on June 15. Average gas prices have dropped due to lower crude oil costs and abundant petroleum supplies.
Gas prices averaged $2.60 per gallon in August, which was the lowest average for the month since 2005. The average price in August was about 15 cents per gallon less than in July.
Gas prices remain relatively high compared to the cost of crude oil. WTI oil prices closed at $46.25 per barrel yesterday, which was similar to the cost of oil in January. Nevertheless, average gas prices are about 41 cents per gallon more expensive than the lowest daily average in January. Gas prices are higher than would otherwise be expected due to high demand and ongoing refinery problems, along with the higher cost to produce summer-blend gasoline that is required in many areas. When the market is running smoothly, gas prices generally drop about 2.4 cents per gallon for every $1 per barrel change in the cost of crude oil.
Summer is the busiest time of the year for driving and millions of Americans are taking advantage of lower gas prices to travel more this year. New estimates by the Federal Highway Administration showed that U.S. driving topped 1.54 trillion miles in the first half of 2015, which was an all-time high. Increased driving results in higher fuel demand, which can lead to higher gas prices.
A number of major refineries have experienced production problems this year, which has led to significantly higher regional prices when combined with high fuel demand. In August, BP's refinery in Whiting, Ind. was forced to shut its largest crude distillation unit temporarily. Gas prices across the Midwest jumped in response with averages in some Great Lakes states up more than 50 cents per gallon in less than a week. BP was able to repair the facility faster than expected, and prices have returned nearly all of those gains, though at a much slower pace than the initial price spike.
Gas prices remain relatively high on the West Coast, in part because ExxonMobil's refinery in Torrance, Calif. is still not operating at normal levels. The refinery experienced an explosion in the spring that sent gas prices in parts of California above $4 per gallon. Gas prices have since declined as supplies enter the market form other areas, yet gas prices in California and neighboring states remain near or above $3 per gallon. The refinery reportedly will ramp up in production in October as it completes repairs.
Oil prices have experienced dramatic price swings in recent weeks. The cost of West Texas Intermediate crude oil closed at a high for the year of $61.43 per barrel on June 10. On August 24, the cost of crude oil dropped to $38.24 per barrel, which was the lowest closing price since early 2009. Oil prices have since moved upwards on updated domestic production data and rumors that OPEC may curtail production.
Oil remains much cheaper than in recent years because of abundant supplies. Growing concerns about the Chinese economy, the likelihood of Iranian oil entering the market and strong domestic production have helped lower oil prices since June. The dramatic growth in the Chinese economy helped drive commodity prices higher in recent years, while the recent economic slowdown has helped to lower prices. Iran promises to unleash as much as a million barrel per day of oil into the market if economic sanctions on the country are lifted. Meanwhile, domestic crude oil production remains nearly 13 percent higher than a year ago, and U.S. commercial supplies are about 27 percent higher than a year ago.
The average price of diesel was cheaper than gasoline for six days in August for the first time since 2009, due to seasonal factors and the elevated cost of gasoline. Today's average price of diesel is $2.57 per gallon.