Sub-$3 Gas, We Hardly Knew You

So much for the national average price of gasoline being able to stay under $3 for an extended period of time.

Thanks to another run-up in the price of crude oil, as well as an unexpectedly high decrease in the U.S.’s gasoline inventories, the national average price for a gallon of regular unleaded gasoline has jumped to $3.05, nearly seven cents higher than a week ago. Last year at this time, the gasoline was at $2.32 per gallon.

Colorado is reporting the lowest state-wide average gasoline price at $2.80, while Hawaii is reporting the highest state-wide average gasoline price at $3.55.

As the price of crude oil began to fall in December (dropping nearly 12% from its peak) there was increased hope that there would be a nearly equal drop in the price of gasoline. Unfortunately, as the price of gasoline began to ease, it’s descent was slowed, and ultimately reversed, by a rebound in crude oil.

Unfortunately, we should probably get used to more frequent ebbs and flows in gasoline prices, thanks to the fairly strong “Catch 22” relationship between the United States’ economy and the price of crude oil.

What I mean by this is as the price of crude oil goes up, there is fear of economic slow down in the U.S., which would likely cause us to have a lower demand for oil. In turn, this causes the price of crude oil to fall. But, as crude oil falls, the threat to the U.S. economy is lessened, which subsequently causes the price of crude oil to slowly tick upwards.

Granted, this is a pretty simplistic view, especially considering there are many other factors behind the price of crude oil. That being said, considering the United States still has the world’s largest economy (thus is still the largest consumer of oil), the U.S. economy is one of the main driving factors behind the price of crude oil.

Long story short, get ready for more of the same.

Happy New Year.

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