Why Are Fuel Prices So Low? A Global Oil-Supply Glut Is Making Crude Just About The Cheapest Liquid Around

Gasoline prices just keep falling. The Texas affiliate of AAA, the automobile association, said Tuesday that the statewide average price of a gallon of gasoline dropped a penny this week, to $1.79, one of the lowest prices in the nation.

Some Americans living in the country’s oil patches, especially in Texas and Oklahoma, are enjoying prices below $1.70, or about 30 cents lower than the national average measured by GasBuddy.com, which tracks national pump prices.

Gasoline prices are closely linked to crude oil prices, and a 42-gallon oil-filled barrel dropped below $40 earlier this month and is hovering at $36 this week, about a fourth of its all-time highest price. A gallon of crude oil has gone from a peak of $3.45 in 2008 — or nearly the same cost as an equal quantity of whole milk — to 85 cents a gallon, making crude just about the cheapest liquid around. Meanwhile, gasoline, which costs more because it’s refined from crude, is now nearly half the price of milk.

This time last year, U.S. gas prices were around $2.30, almost $1 less than where prices were during the 2013 holiday season. The price of gas hasn't fallen this low since March 2009, when the nation was mired in the longest period of economic contraction since the Great Depression.

“The extra savings and cheer will certainly spread as we close out the year,” Patrick DeHaan, senior petroleum analyst at GasBuddy, said in a statement Tuesday. “There has not been a better time in years for motorists to extend their trips and travel farther, as sub-$2 per gallon gas can be found at almost 70 percent of stations in the country.”

This year’s holiday-travel Christmas present to road-trippers is coming thanks to a massive global oil-supply glut. Gas prices track closely with crude prices, and West Texas Intermediate (WTI) crude, the U.S. benchmark, dropped below $40 per barrel earlier this month, shedding more than half its value since the first half of 2014.

The price drop is due to Saudi Arabia and other oil-rich OPEC countries not pulling back on crude production. The reason is simple: They want to keep their customers as the U.S. is poised to start exporting oil and gas to world markets for the first time since the early 1970s.

This week, WTI futures (what traders think a barrel of oil will be worth in the near future) have been hovering around $36 a barrel, cheaper than two tickets to see the new “Star Wars” film in large-format Imax. They’re at their lowest prices since February 2009, about 14 months into the Great Recession.

Gasoline prices and crude prices follow each other, and both hit their all-time peaks in July 2008: more than $4 for gas and about $145 per barrel of oil. Today, gas is half that price and crude is down sharply. What a difference seven years makes.