Photograph by Steve Abbott, National Geographic Your Shot

Are U.S. Gas Prices on a Long-Term Slide?

ByPatrick J. Kiger
December 12, 2013
6 min read

Back in 2008, when drivers pulling into gas stations in their full-size SUVs stared in shock at prices of $4 and up for a gallon of regular, it seemed as if we were heading into an austere future in which fuel would be increasingly scarce and brutally costly.

But the energy apocalypse for consumers that many expected never came to pass. Instead, an analyst for Kiplinger, the Washington, D.C.-based publisher of business forecasts, thinks we may be headed into an era in which gasoline and other consumer energy costs will steadily decline due to structural shifts in both the energy marketplace and American economy and lifestyle. (See related blog post: “The Pursuit of Low Gas Prices Is Bad for the U.S.”)

Kiplinger’s just-released monthly economic forecast letter, which is available to subscribers on its website, projects that energy markets will be calmer in 2014, particularly when it comes to fuel for vehicles:  Regular unleaded gasoline will average $3.40 a gallon, about 10 cents lower than it has been in 2013. Those predictions are consistent with the U.S. Energy Information Administration (EIA)’s short term energy outlook for December 2013, which was released Tuesday.  The EIA forecasts retail prices for gasoline will average $3.43 next year.

Kiplinger, however, predicts that the U.S. price for crude oil (West Texas Intermediate) will stabilize at $85 to $90 a barrel, slightly lower than the $95 a barrel that EIA predicts for crude in 2014. (See related story: “U.S. Gas Price Spike: Blame the Long Road From Well to Pump.”)

The Kiplinger forecast, which is based both on both government data and interviews with energy industry executives, analysts,  traders and consultants to big investors, attributes the lower prices to anticipated cooling of tensions in the Middle East, combined with rising U.S. domestic energy production.

But Kiplinger associate editor Jim Patterson, who authored the analysis, believes that the gasoline price decline is part of a long-term shift.  In an interview, Patterson said that the trend is being driven by a variety of factors, ranging from increased domestic production and more fuel-efficient cars, to lifestyle changes and economic and societal evolution. (See related story: “Crude Reality: Gas Prices Rocket Because They Can.”)

“The price drop in 2014 isn’t a dramatic difference, but it’s part of an easing trend,” Patterson explained. “2014 is lower than 2013, and the average this year is lower than in 2012.”

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The situation is a marked contrast to 2008, when pump prices seemed headed to ruinous heights, and energy market-watchers talked worriedly about a steady decline in domestic oil production.  “It almost seemed as if we were running out of oil,” Patterson said. “But that’s turned around in the past five years. The U.S. is producing much more oil and other petrochemical fuels, and we have the world’s most efficient refining sector, so that home-produced oil is cheaper for refiners to buy.”

The consumer gasoline market now has a bit of a cushion that should help control prices, Patterson said. But that’s only part of the downward market pressure. Over the past five years, consumers have traded in their older, fuel-hungry vehicles for cars, trucks and SUVs with technological upgrades that make them much more fuel-efficient. “Back then, there weren’t that many cars that got 40-plus miles per gallon,” he said. “Now, there’s a selection of them. Even the big pickup trucks that working people need are getting mileage in the mid-20s.”

Consumption of gasoline is actually expected to be 1 percent higher in 2013 over 2012, according to the EIA, but is expected to fall slightly next year. Overall, more fuel-efficient vehicles are helping to reduce consumption, and Patterson also noted that Americans are driving less, a phenomenon described in a just-released report by the U.S. Public Interest Research Group Education Fund, a consumer activist organization.  Based on federal highway, transit and census data, U.S. PIRG concluded that the average American drives 7.6 fewer miles today than in 2004, and that residents’ annual mileage has declined in 75 percent of the nation’s urban areas.

More commuters are relying upon carpools, public transit and alternative modes such as bike sharing services, and increasing numbers of people are working from home, U.S. PIRG found. A previous study found a particularly sharp drop in driving by people between ages 16 and 34, who drive 23 percent fewer miles than their counterparts did in 2001. Patterson attributed that shift in large part to the revitalization of urban cores and the growing popularity of walkable city neighborhoods. “You’ve got a lot of people between 16 and 35 who don’t even bother to get a driver’s license,” Patterson said.

Phil Flynn, an analyst for the Chicago-based PRICE Futures Group, foresees a gradual decade-long slide in gasoline prices. “With shale, we’re going to be one of the biggest oil producers in the world, and that means there’s less geopolitical risk for a barrel of oil,” he said. “That definitely will put downward pressure on prices.”

Like Patterson, Flynn sees other factors pushing gasoline prices downward.  The U.S. population is aging, and driving less as a consequence, he said.  But even younger Americans are putting in fewer miles than previous generations. “They’re just not as car-oriented as we were,” he said. “They’re more inclined to live in the cities, closer to their jobs.”

Additionally, Flynn thinks the development of alternatives to gasoline is fundamentally altering the fuel marketplace. He envisions that in the near future, Americans will pull into a filling station and have the choice of gasoline, natural gas, or an electrical charge at the same pump. “We have realistic alternatives to gasoline, which is something we didn’t have five or 10 years ago,” he said.

Heating costs, unfortunately, don’t seem to be following the downward trend for gasoline. Both Kiplinger and EIA are predicting a small increase in natural gas prices for consumers, in part because winter temperatures in 2013 and 2014 are expected to be colder than 2012’s record wintertime warmth, which will result in more consumption and demand.

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