Gas Prices

Attorneys General from more than 30 states are investigating the underlying cause for sudden and dramatic increases in gasoline prices across the country.

The multi-state probe will focus on the factors that generated the rapid escalation in gasoline prices in days following Hurricane Katrina.

"Hurricane Katrina was an event totally outside human control," Pennsylvania Attorney General Tom Corbett said. "We want to determine if storm-related factors were the only things responsible for this sudden and dramatic jump of prices at the gas pump."

California Attorney General Bill Lockyer announced he will subpoena records from refiners and probe the pricing practices of gas station owners in his state.

Hurricane Katrina has broken families, devastated communities and destroyed lives, said Lockyer. Its during times such as this that its most important we pull together, act with one heart, and rebuild with a sense of community. To unjustly profit from tragedy is unconscionable. I hope this investigation does not find that such greed has afflicted oil companies and gas station operators in California.

In Florida, Attorney General Charlie Crist has sent teams of investigators and sworn law enforcement personnel from his office to locations throughout the state to look into complaints of price gouging on the price of gasoline.

Crist said investigators will be looking to determine whether the rapid rise of gas prices meets the legal definition of gouging, and vowed to prosecute any violations of the law.

As of 1:00 p.m. Friday, the Attorney General's toll-free consumer hotline had received 1,050 complaints about skyrocketing gas prices in the days since Hurricane Katrina ravaged the Gulf Coast.

"When we hear of 75- to 90-cent price spikes within two days, or reports that surcharges are being tacked onto consumers' fuel costs, then it is our duty to investigate," said Crist. "Floridians understood that damage from Hurricane Katrina would lead to some disruptions in fuel supply and some cost increases, but these spikes lead to legitimate questions that must be answered. Gouging will not be tolerated."

Alabamas AG, Troy King, said What we have seen in the last few days is a crisis unfolding throughout America and particularly in the Southeast -- on top of the terrible natural disaster of Hurricane Katrina -- with gas prices rocketing to such a degree as to create serious allegations of price gouging."

Other Attorneys General and I are committed to getting clear and understandable answers about why gas prices have risen so rapidly and dramatically, and if the law is being violated, we will take action," said King.

Gas prices have spiraled to more than $3.00 per gallon across much of the country since Hurricane Katrina smashed into the Gulf Coast earlier this week.

Consumers have seen gasoline prices drop sharply in the last week, falling more in some states than in others. But in point of fact, prices are just getting back to normal after speculation in the futures market added upward pressure in the two previous months.

The AAA Fuel Gauge Survey shows the national average price of gasoline is $2.16 a gallon after falling over the last 10 days. That's down a nickel from a week ago and nearly a dime lower than a month ago. But it is exactly in line with last year's national average.

“The abundance of crude oil in the global market is contributing to lower prices, and as a result, retail averages are the same price as compared to one year ago,” AAA said on its website.

Stong dollar helping motorists

Another factor is at play here as well. The U.S. dollar has strengthened significantly since Donald Trump's election a week ago and, since oil is priced in dollars, oil prices have begun to fall even more.

They were moving in the other direction in September and October as speculators bet that OPEC members, which are scheduled to meet at the end of this month, would agree to cap production, to drive up oil prices. Wall Street optimism for such an agreement is fading, and the latest data shows OPEC has increased production in recent weeks.

Less demand

There also tends to be less demand for gasoline during the month of November, and with refinery maintenance mostly completed, the outlook is brightening for falling fuel prices into the end of the year.

In some states, the price at the pump is absolutely in a free-fall. In the last week, Indiana saw its statewide average plunge 14 cents a gallon. It's down 12 cents in Ohio, 11 cents in Michigan, eight cents in Kentucky and Illinois, and seven cents in Nebraska and Oklahoma.

The statewide average is below $2 in nine states, with the lowest prices in Missouri and Oklahoma, both of which are reporting an average price of $1.88 a gallon.

The price motorists pay at the gas pump keeps falling, and with less than five weeks remaining in 2015, it appears likely we'll start 2016 with a national average price below $2 a gallon.

According to the AAA Fuel Gauge Survey, today's national average is $2.03 a gallon, down three cents per gallon for the week, 14 cents over the last month, and 74 cents compared to a year ago.

The national average has dropped for 24 of the past 30 days. The biggest contributor to the break at the gas pump has been the end of unplanned and planned refinery maintenance, which tends to reduce the output of refined gasoline and creates temporary bottlenecks in supply.

AAA says that not only have these supply disruptions been cleared up, demand for gasoline typically goes down during the winter months and the gasoline market may become even more oversupplied in the near term.

That should should keep gas prices relatively low. Barring any unanticipated disruptions in supply, or swings in the price of crude oil, AAA expects retail averages to continue to fall leading into 2016.

Oil experts weigh in

A new survey by CNBC should also give motorists some holiday cheer. The business news network surveyed oil industry analysts and traders and found 46% believe oil will reach new lows in the first half of 2016. In a unanimous vote, 100% of those surveyed agreed that OPEC will not increase production when it meets later this week.

It was OPEC action a year ago, ramping up production in the face of ample supply and declining demand, that began oil's downward price spiral. Low oil prices, of course, pull down gasoline prices with them.

Meanwhile, drivers in 22 states are now enjoying gasoline prices that average $2 a gallon or less. Just a couple of months ago, refinery problems in the Midwest sent gasoline prices in that region soaring. But now AAA reports Michigan is tied with Missouri for the lowest average gasoline price – $1.81 a gallon – and Ohio is close behind at $1.82.

Most areas see falling prices

While prices have leveled off in some areas, average gasoline prices are down in 45 states and Washington, D.C. month-over-month, and consumers in 34 states are saving a nickel or more per gallon.

Fifteen states have seen savings of 25 cents or more per gallon over the last 30 days, led by Michigan, where the price is down 47 cents a gallon. Wisconsin motorists are saving 38 cents a gallon and Ohio drivers are pocketing 36 cents.

Pump prices moved higher in five states over the last month, all by less than a nickel per gallon. The price is up four cents in Oregon, and three cents in both New Jersey and Washington.

When the price of gasoline goes down, as it has since August, consumers typically don't question why. They just fill up and consider themselves lucky for now, waiting for the inevitable price spike.

A month ago the national average price of self-serve regular was $3.40, which was down significantly from the month before. But today the average price is below $3.20 a gallon, with motorists paying well below $3 in a handful of states, according to AAA.

It provides a nice break for consumers heading into the holiday season, but can it last? It just might.

In an exclusive this week, Reuters reported that Saudi Arabian oil officials have privately told industry colleagues they would be comfortable with lower oil prices for an extended period of time.

For years the world price of oil has hovered north of $100 a barrel. The Saudis reportedly said they wouldn't mind if the price continued to fall, to between $80 and $90 a barrel.

2 year respite?

There are many factors that affect the price of gasoline but the price of oil is a big one. If oil sold between $80 and $90 a barrel for an extended period – and the Saudis are reportedly talking about 2 years – then the price of gasoline should remain at present levels, or even drift lower.

Why would Saudi Arabia, which depends on its oil revenue for nearly all of its income, so willingly accept lower prices? Do they finally feel sorry for U.S. consumers? Hardly.

Because Saudi Arabia is so dependent on oil revenue it has become extremely worried about the shale oil revolution in the U.S., that has dramatically increased domestic production and made the U.S. less reliant on foreign sources. The Saudis see this as a significant long-term threat.

But extracting oil from shale is an expensive process. As long as the price of oil has remained over $100 a barrel, U.S. oil production has been highly profitable. If the price falls below $90, however, it cuts into shale oil profit margins.

There will be less money for research and development. In short, it's a squeeze play.

According to Reuters, the Saudis appear willing to sacrifice short-term profits for a long-term strategy to weaken a competitor. Whether it works remains to be seen but it suggests how potent a force the Saudis consider U.S. shale.

Speculators find oil less attractive

In the meantime, U.S. consumers stand to benefit. Once it becomes clear that the price of oil is on the decline, there will be less hedge fund money in the oil futures market, money that in the past has tended to drive up the price.

But won't rising global economic activity increase demand for oil and drive up the price? That was the reason we were given for oil's price surge in the mid 2000s.

It's a different story now, with economic activity slowing world-wide, especially in Europe. The supply and demand factor seems to be favoring the U.S. consumer, at least for now.

Finally, U.S. motorists are benefiting from a strong dollar. The U.S. currency rose sharply in the third quarter and is still gaining strength against other currencies. Since oil is priced in dollars, it takes fewer dollars to buy the same quantity of oil as it did a year ago.

None of these appear to be systemic changes but neither do they appear to be short-term trends. The end result is that filling up might not be quite as painful for some time to come.