As an increasing number of states have imposed restrictions on travel and business operations to slow the spread of COVID-19, markets have tanked amid a sharp increase in unemployment claims. Some measure of a silver lining for consumers might come at the pump: As the price of crude oil plummets, the average price nationwide for a gallon of regular unleaded gasoline was just $2.11 as of March 24, per AAA. That’s down 37 cents a gallon from a month ago and 52 cents versus a year prior. In certain counties across Oklahoma and Texas, gas averaged just under $1.50 a gallon as of March 24; AAA pegged it in one Kentucky county at just under $1.25.
Why so low? Dust off that Econ 101 textbook: It’s basic supply and demand.
With increasing population groups across the planet under order to stay at home to stem the spread of COVID-19, demand for transportation — and the oil to fuel it — has fallen. But thanks to a weeks-old price war between Saudi Arabia and Russia, which reportedly disrupted plans to scale back production, oil supply has not exactly moved in lockstep.
“Saudi Arabia is looking like they’re ramping up production,” said Matthew French, a petroleum analyst at the Energy Information Administration. “There’s a lot of oil supply on the market right now. And then obviously on the demand side, [given] everything with the COVID-19 outbreak, there’s been a huge downturn in demand.”
How much of a downturn? Consider: More than half of the U.S. population was under an order to stay at home as of today (March 25), by CNN’s estimate, while entire countries — from the United Kingdom to India — are going on lockdown. It’s unsurprising, then, that Bloomberg News reports global oil demand may dry up by as much as 20% this year.
Oil prices, meanwhile, have already plummeted to well under $30 per barrel. That’s down from the $60 range during much of 2019. AAA spokeswoman Jeanette Casselano says oil prices haven’t been this low — around $23 a barrel on March 23 for West Texas Intermediate crude, the U.S. benchmark — in nearly 20 years.
In normal times, when crude oil is selling for $60 a barrel, seasonal factors affect gas prices more, Casselano said. But right now, the tanking price of oil — which constitutes “nearly 60% of the price you’re seeing at the pump,” she said — is more responsible than any other factor in the low cost of gas.
A gallon of regular gasoline hasn’t been this cheap since April 2016, per EIA data. The economy is poised for a potentially calamitous unfolding, and consumers need all the help they can get. But with widespread coronavirus-related travel restrictions, it’s not like such savings help many household balance sheets.
“Everyone is at home — no one can reap the benefits of cheaper gas,” Casselano said. “So when we’re staying home, that means demand is diminishing. That means supply continues to go up [and] gas prices continue to get cheaper.”
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