It wasn’t so long ago that pulling up to the pump meant cleaning out your bank account. But prices are dropping ever lower, even getting below $2 a gallon in some areas. But why is gas so low … and will the low prices last?
The price of gas, like any product, is driven by supply and demand. As any driver learns, gas prices tend to fall in autumn and winter as people stop driving for vacations. But there’s a more complicated mix of factors at play here behind the plunging demand and supply staying stable, starting with the cars we buy. The industrialized world has been buying cars that are more and more fuel efficient; as we wring more miles out of a tank with each passing year, that drives down overall demand.
Beyond that, though, there’s been a shift in how we obtain gas for our cars. More and more, American cars use American and Canadian gas, partially because it’s much cheaper to distribute. Adding to the problem, European economies are weakening as their population ages, and other factors kick in. Increasingly, that leaves nations like Saudi Arabia and Russia competing in Asian markets, which drives down prices overall.
Furthermore, some nations, such as Venezuela, are suffering from outside economic factors that force them to drive down prices. Those external factors are contributing to low prices.
The main question, for drivers, is how long these prices can last. And there are already signs that while we may not see the bad old days of $4 a gallon gas back any time soon, the lower prices we’re enjoying aren’t going to last forever.
Again, it’s a question of supply and demand, and it’s worth breaking out possible changes to both of those. Starting with supply, low prices are great for drivers, but they don’t exactly help out the oil industry. In fact, the low prices add up to major challenges for the American oil industry, which has already laid off 200,000 workers and is increasingly stopping efforts to search for new oil. In the short term, this will mean that if demand rises suddenly, there won’t be the supply to meet it.
Similarly, nations facing severe economic pressures might simply collapse, and take their oil infrastructure with them. If they can’t pump oil, they can’t ship it, and thus takes that supply out of the market. Groups such as OPEC may also decide to artificially drive down supply in order to raise prices.
On the demand side, the issue is simply that demand can spike or drop at surprising speed in international markets. Asian markets, for example, might suddenly go from low demand to high. Similarly, as oil markets adjust to efficiency designs in cars, they’ll begin to raise prices.
In short, while the good times will roll for a while, they won’t last forever. Plan ahead by getting a fuel-efficient car and looking into limiting driving for certain errands where possible. Planning to save gas now will pay off later.