When Will Gas Prices Go Down?

Money > Financial Tips

By E. Napoletano

Gas prices are up lately, especially compared to the ultralow rates drivers enjoyed during the pandemic. While some relief is on the way, experts suggest it isn't likely to arrive until next year.

For drivers, Covid-19 came with a small silver lining. With millions stuck at home, oil supplies swelled, and Americans scored a big break at the pump—with gas below $1 per gallon in some locales. Today, people are thankfully back at work and behind the wheel, but those dollar-gas days are history.

According to the U.S. Energy Information Administration, the leading domestic authority on energy pricing, today's gas prices—roughly $3.60 per gallon nationwide—are here to stay through the summer driving season.

The war in Ukraine and the Organization of the Petroleum Exporting Countries’ downward shifts in oil production have both reduced supply and helped push up costs for drivers. Though frustrating for your budget, there are apps and consumption shifts that can ease your per-fill-up pressure.

When you venture out during the summer travel season, expect gas prices to remain steady through September—mostly due to overseas economic pressures.

Western sanctions in reaction to Russia's invasion of Ukraine left Russia with a hefty supply of oil it couldn't move. These sanctions tightened global oil supplies and continue to put upward pressure on gas prices.

While China has stepped in to take some of that surplus of Russian oil, Western countries are still struggling to find enough oil to meet demand because of OPEC's recent effort to slash oil production, a move designed to keep crude at a per-barrel price that will allow OPEC members to realize optimal profits.

"A large share of retail gas prices is crude oil price per barrel," says Stuart Katz, chief investment officer at wealth manager Robertson Stephens. "When per-barrel prices go up, gas prices go up. It's a direct increase."

With these two major economic pressures, the EIA estimates that Americans won't feel relief at the pump until at least the end of 2023 when it expects prices to drop to roughly $3.30 per gallon.

For real relief, Americans will likely have to wait until the end of 2024. By that time, the EIA estimates gas prices will drop to roughly $3.09 per gallon—a near-50-cent price break from today's prices.

While supply and demand are the leading factors that dictate oil and gas prices, they aren't the only players. Energy policy, executive action and geography also play a role.

Over the past few years, the U.S.has ramped-up investments in clean energy. While potentially helpful for the future of the planet, that shift could mean oil producers cut back, pushing up gas prices in the short term.

New legislation like the Inflation Reduction Act prioritizes investments in clean energy, like tax credits for both new and used electric vehicles. There's also a significant investment being made at the federal level in EV infrastructure for charging stations. "As a country, we’ve made a policy shift away from fossil fuels," says John LaForge, head of real asset strategy at Wells Fargo Investment Institute—a tough transition to make "for a world that runs on oil and oil-related products."

LaForge expects oil producers and consumers to have some growing pains during this oil-to-electric shift. First, he expects domestic oil producers to keep a tight rein on oil production. While this will keep per-barrel prices high and protect producer profits, consumers will pay more for every gallon they pump, at least in the short term—unless, of course, they themselves switch to electric.

When gas prices are stubbornly high, the president has one price at their disposal to create cost savings: the Strategic Petroleum Reserve, or SPR, which consists of millions of barrels of oil stored in underground bunkers.

America's emergency stash of oil was created in the1970s to protect the U.S. crude oil supply and "alleviate significant oil supply disruptions or price inflation." The president has discretion over when these reserves are released into the U.S. supply or sold.

Since its inception, presidents have directed emergency releases from the SPR multiple times. The first two releases were under two Bush Administrations: in 1991 at the onset of the Persian Gulf War and in 2005 after Hurricane Katrina disrupted coastal oil production. The third was under President Barack Obama, releasing 30.6 million barrels to ease global crude shortages to hold up the U.S.'s agreement with the International Energy Agency.

The latest SPR releases have been by President Biden in response to the Covid-19 pandemic, rising inflation and oil supply disruptions caused by the war in Ukraine and have taken a decent bite out of gas prices. The Treasury Department estimates that releases in the first half of 2022 brought gas prices down between 17 cents and 42 cents per gallon. But additional SPR releases aren't likely, as supplies in those underground bunkers are lower than normal, and efforts are being made to replenish stores.

Roughly half the cost of a barrel of oil comes from getting the oil out of the ground. The other half is refining, distribution costs and taxes. "The price of gas at the pump isn't uniform and some states pay more than others in large part due to the absence of refining facilities," says Katz.

According to EIA figures, the lowest gas prices can be found along the refinery-rich Gulf Coast and the highest along the West Coast. But transport costs are only part of the equation.State excise taxes on fuel can send prices up or down, too.

Figures are cents per gallon for 2023

Source: Federation of Tax Administrators

Despite gas prices remaining steady through the summer, you don't have to sit back and take the hit to your wallet. If you’re willing to leverage the internet—and perhaps a behavioral shift or two—you could see meaningful savings at the pump.

Your phone can guide you to fuel savings around town, but please, check prices before you shift into drive.

An app like Gas Buddy can help you find the best deal on fuel in your local area. And when you use their fuel card linked to your bank debit card, savings can add up to 25 cents per gallon. The Upside app is another option that can help you find per-gallon rebates in your area, which vary by gas station. You’ll accumulate cash rebates per fill-up, which you can withdraw via a gift card or cash via PayPal or your bank account.

The Google Maps app also has a gas pump icon under the main search bar that will highlight local gas prices.

Your favorite fuel stop may have a way for you to save—you’ll just have to sign up for their program.

Popular gas station chains like Circle K, Shell, Exxon/Mobil and Speedway offer loyalty programs ripe with rewards like immediate per-gallon savings or points. Both Shell and Circle K offer an instant 5 cents off per gallon each time you fill up, and other programs award points for gas and in-store purchases. Accumulated points translate to a per-gallon savings when redeemed.

If your local grocery store offers a loyalty program with a gas station partner, you could fuel your hunger and gas tank at the same time. Instead of redeeming grocery rewards for savings at the checkout, you can apply those rewards to a fixed per-gallon discount at a partner gas station.

Points with most grocery rewards programs let you save 10 cents per gallon for every 100 points, with points typically resetting to zero at the top of each month.

While not an accessible option for many, now may be the time to plan your switch to a hybrid or electric vehicle.

Consumer Reports indicates that hybrids cost between $2,000 to $3,000 more than their gas-powered counterparts, but many models make up for the higher price in lower fuel costs within the first four years of ownership. The publication reports that hybrids like the Lexus MX and Ford Maverick pickup can offer immediate savings because of their lower purchase price.

Electric vehicles have fewer model options and tend to have adoption costs like a home electrical panel upgrade and charging system installation. If you’re in the market, it's worth reviewing the brands eligible for the newer EV and hybrid tax credits for additional savings.

Depending upon your commute to work or school, using a two- or three-wheeled vehicle could help you save substantially at the pump.

Becoming a bike commuter can reduce your carbon emissions by 67%, according to research from the University of California, Los Angeles. If you prefer more speed—or just less effort—consider an e-bike. For the more adventurous, the average motorcycle clocks in at a formidable 44 miles per gallon, with scooters stretching a gallon of gas up to 60 to 70 MPG.

While biking and motorcycling both come with additional risk, great bike lanes, a helmet and a motorcycle safety course can put you in a better position to save gas and yourself while on the road.

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