TEXAS, USA — The cost of regular unleaded gasoline dropped to $3.97 a gallon on Wednesday. It marked the first time gas dropped below that price since May and represented a $0.66 drop from $4.63 last month according to AAA Texas.
While drivers may hope to see that trend continue all the way to last years July average of $2.83, Texas Alliance of Energy Producers President Jason Modglin tells 6 News prices may be much closer to leveling out around $4 a gallon than we would like.
Gas prices are affected by supply, demand, and future market speculation. Modglin told 6 News the recent drop in demand for oil was the largest factor, followed market speculation. He said the U.S. oil supply has not grown significantly, even after President Joe Biden released oil from the U.S. Strategic Petroleum Reserve in May.
Modglin said prices have kept more drivers off the road this summer than companies expected and that lack of demand eventually led to a drop in prices. At the same time, he said companies that buy oil products for refining and other products are now buying less because of the state of the economy. He said was the drop in prices was primarily due economic concerns.
"Unfortunately we can attribute it to fears about a recession, decline in investments and a softening in GDP. Oil prices very closely tie to that GDP number both nationally and around the world," Modglin said.
AAA Texas also connected the drop in prices to the current economy. AAA said in a press release," Gas prices across the state fell as economic slowdown concerns due to rising interest rates, and inflation, outweigh crude oil supply worries as the war in Ukraine continues. The potential for declining crude oil demand, as it relates to possible reduced economic activity, could lead prices to follow suit."
Modglin said prices would likely even out around the $4-a-gallon mark unless production in the U.S. increased. He said production has increased in Texas but the rest of the U.S. had not yet returned to pre-COVID levels of production. He said there is also a lack of additional drilling as leasing on federal land has not been expanded.
"Leasing hasn't progressed forward to allow for more leasing or faster permitting. We haven't had major announcements for pipelines, no new refinery announcements, or any additions this year," Modglin said.
Modglin is also concerned about future speculation on gas prices and gas supply. He said the oil industry had believed the Biden administration would take additional actions after releasing oil from the national reserve that would allow for more oil production in locations like Alaska, North Dakota, and the Gulf of Mexico. He said this never happened.
President Biden has spoken to counties outside the United States about increasing the oil production but Modglin said that was frustrating to Texas oil producers.
"For domestic producers it's kind of a slap in the face. Why don't you come to Midland and ask us instead of going elsewhere?" Modglin said.
The lack of support for new drilling has also lead to confusion among investors, Modglin said, and that leaves future prices partially in the hands of speculators who are trying to guess what will happen in the oil market.
"Capitol investors continue to see uncertainty out of Washington D.C. Washington D.C. realizes that we need more energy in this country and in large part that comes in large part from oil and natural gas. At the same time they want to transition away from oil and gas towards alternatives. Alternatives have not been as reliable or productive," Modglin said.
AAA Texas also said prices could be sensitive to new developments and political announcements:
"Crude oil prices remain sensitive to headlines – trading in wild swings somedays, and July is still a leading month for travel demand; therefore, it is unclear how long downward pressure will remain on the price at the pump," a AAA release said.
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