Gas prices plummet: How low will they go?

Updated: Aug 13, 2013 09:33 AM
© iStockphoto.com / Perry Gerenday © iStockphoto.com / Perry Gerenday

By Richard Read 

Here's a bit of good news for folks looking to squeeze in a last-minute summer road trip: the price of gasoline is plummeting. But how much further will it fall?

According to CNBC, the cost for a gallon of regular unleaded dropped to around $3.59 on Friday, 7.61 cents lower than it had been two weeks earlier. Is that unusual? A bit.

Gas prices tend to peak in the month or so leading up to fuel-blend changes. In the spring, that means that prices begin creeping up in April, since refineries have to switch over to making more costly summer-blend gas by May 1. Refineries scale back on production of winter-blend gas (they want to sell all that they make, not store it over the summer), and that causes a shortage in supply, which in turn causes prices to escalate. The process reverses itself in August and September as the country switches from summer-blend back to winter-blend

The difference this year is that refineries have been steadily increasing their efficiency, and as a result, they can crank out much more gas than they used to. Moreover, refineries haven't yet put the brakes on summer-blend gas, meaning that there's plenty of the stuff still flowing to gas stations.

In fact, there's so much of it, that supply is outstripping demand, and that's keeping prices low. Analyst Trilby Lundberg says that the price could fall a bit more before hitting bottom.

As exciting as that is, though, it's unlikely that gas will dip significantly lower. Refineries can make the jump from summer-blend to cheaper winter-blend gas on September 15, so we should see production drop prior to the changeover, which will cause prices to climb again. Drivers may save a few more pennies over the next week or so -- averages might even reach the $3.50 mark -- but unfortunately, the savings aren't likely to last.

This story originally appeared at The Car Connection 

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