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Business, Energy, STEM

Lower Gas Prices Deliver Tidings of Great Joy

Customers at Quick Convience Chevron, Phoenix, AZ

Customers at Quick Convenience Chevron, Phoenix, AZ

U.S. motorists are seeing something that they haven’t seen in a long time: gas prices below $2.00 a gallon. This good news comes at the end of the calendar year and during the holiday season. Savings at the pump can be used to purchase additional Christmas gifts, pay bills, or put a few extra dollars in your savings account.

One of my colleagues reported filling up her tank yesterday for less than $20. If you read a previous post, Falling Prices At Your Local Gasoline Retailer, I was ready to do my happy dance because pump prices had fallen below $3.00 per gallon. With gasoline prices falling below $2.00 per gallon, there’s going to be some dancing in the streets. Others may choose to sing Dancing in the Street, a song originally recorded by Martha and the Vandellas via Motown Records in 1964.

According to GasBuddy.com [Ref 1], Americans are saving over $13 million dollars an hour versus gas prices a year ago – adding up to over $315 million every day. Diesel fuel prices are also on the decline.

Today’s national average for a gallon of unleaded (87 octane) gasoline is $2.361, about 15.6 ¢ cheaper than a week ago. The average price for Arizona is $2.285. However, at least half of the 50 states have at least one or more retailers selling gasoline at $1.99 per gallon.

So, who is responsible for these tidings of great joy? Answer: some unlikely sources.

First, oil and gasoline prices are slightly lower this time of year. This can be attributed to the end of the summer driving season (about mid-September) and some areas switching from summer to winter blends. However, that alone is not what is driving gasoline prices below $2.00 per gallon. The larger impact is from the energy renaissance in the U.S. that has emerged as a growing threat to OPEC’s oil production.

Natural gas from fracking – created by the shale oil boom has helped the U.S. become more energy independent and less dependent on oil from the Middle East. “For investors, the biggest problem with fracking is its high cost; oil prices need to stay above $85 a barrel in order for new fracking investment to be worthwhile. Harold Hamm, the CEO of Continental, a drilling company that controls most of the contracts in the oil rich Bakken region of the U.S., told [Trish Regan] in an interview that at $75 per barrel, “people have to make some adjustments, and they have to do it quickly. You start drilling only what you need to drill.” [Ref 2]

And guess what? OPEC knows that. Members of the cartel met in Vienna the end of last month. They made no changes to their current production levels…and therefore there is plenty of crude oil available that can be refined to make gasoline.

As prices drop below $100 for a barrel of crude, pressure is put on U.S. fracking operations. And guess what, again? OPEC knows this. Therefore, it is imperative that the U.S. continues its investment in multiple forms of alternative energy.

Merry Christmas everyone! Happy Hannukah, Kwanza and New Year’s, too!

References:

    1. National average plunges another week, Patrick DeHaan, GasBuddy.com, https://blog.gasbuddy.com/posts/National-average-plunges-another-week/1715-595386-2806.aspx
    2. Why OPEC is fine with falling oil prices, Trish Regan, Special for USA TODAY, November 4, 2014, http://www.usatoday.com/story/money/markets/2014/11/02/opec-oil-stocks-energy-gas-middle-east/18247191/. Last viewed on 12.23.2014

 

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About Vi Brown

Vi is principal and CEO of Prophecy Consulting Group, LLC, an Arizona firm that provides business and engineering services to private and public clients. Prior to establishing her consulting practice in 2001, Vi worked with Motorola, Maricopa County Government, Pacific Gas & Electric, CH2M Hill, and Procter & Gamble. As an adjunct faculty member, Vi teaches undergraduate calculus classes and graduate level environmental courses. She is also a professional speaker.

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