Oil price decline makes gasoline less expensive
Sep 11, 2015 09:05 AM EDT
Gas becomes less expensive because the bottom has fallen out on oil prices. Crude is responsible for almost half the cost of a gallon of gas, as reported by CNN Money.
Since June, prices have been plummeting and according to AAA, the regular gasoline's average price is now at $2.40 per gallon or more than a dollar less than it was a year ago. The plunge has been widespread and average prices are still above $3 in only four states namely: California, Nevada, Alaska, and Hawaii wherein the last two states have everything that is often more expensive.
A hundred thousand or more gasoline stations in the U.S., more than 5% sell their gasoline for less than $2 per gallon, AAA says. In the past week, the statewide average price has reduced below $2 in South Carolina.
For most people, cheap gas is similar to getting a raise and Americans are enjoying their savings. A typical driver saves about $50 a month because gas prices have declined too much.
Oil trade is now at $46 barrel but last summer it was at $100 a barrel. It is bought and sold on world markets and majorly driven by supply and demand.
As oil prices go down so do gasoline as well as the price of commodities. It's like a domino effect and it's the law of supply and demand. If there is a large supply but less demand, tendency is, the price is going to be low, but if the supply is scarce, but there is a large demand, the price is, of course, going to be high.
Lower oil prices are significantly bad news for the governments with budgets that are dependent on them being high. Saudi Arabia, though the apparent leader of OPEC, faces huge budget deficits this year because of decreased oil prices. The oil-rich country's deficit is about $140 billion, according to International Monetary Fund (IMF).
For the mean time, it is not yet understood when the oil price war stops while some analysts expect that low oil price will last for a while. What's even more unclear is who will become the victor at the end of it.