Why gas prices are dropping ahead of the holidays 

Gas prices dipped significantly over the weekend, bringing relief for drivers ahead of the holiday.

As of Monday, the national average stands at $3.15 per gallon, according to AAA. That’s 5 cents less than last week, which was itself 20 cents down from a month ago.

One of the driving forces in the decline is the aftermath of the Nov. 30 meeting of the OPEC+ oil cartel, said Andy Lipow, president of consulting firm Lipow Oil Associates.

A subsequent decline in crude oil prices “showed that OPEC+ is struggling to balance oil supply and demand in light of the surprising increase in supply from the U.S., Brazil and Guyana, as well as disappointing demand from China,” Lipow said.

Those declines have meant “good news for the consumer” at the pump, Lipow said, and prices may drop a few cents more over the week.

China, meanwhile, was expected to see a surge in demand that accompanied the lifting of COVID-related restrictions, but despite an early spike, Chinese refiners have recently cut back on their processing rates, Lipow said. A Bloomberg survey of industry analysts and consultants projects Chinese oil demand will decline to about 500,000 barrels per day next year, about a third of the demand recorded over the past year.

After years of growth, the Chinese economy has seen a recent cooling, said Samantha Gross, director of the Brookings Institution’s Energy Security and Climate Initiative, particularly amid concerns of instability and possible outright collapse in the country’s real estate market.

“You’re seeing the Saudis, in particular, try to prop up prices, and it’s not working,” she said.

Domestically, the gas price decline is part of a cycle that has been typical in past years but recently had been absent in the winter months, said Devin Gladden, an AAA spokesperson.

“During the fall and winter, we see days become a lot shorter, inclement weather increasing, drivers spending less time on the road,” a trend that typically drives oil demand down through the end of the year, he said. “Over the past few years, we’ve seen some anti-cyclical events happen during the winter, such as a spike in oil prices, [but] this year prices are following some of the typical trends.”

According to the typical cycle, he added, the prices at the pump will likely stay low until the weather begins to warm and outdoor activity picks back up.

The result is “a nice tailwind for consumers for probably the next 45 days,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. By the weekend, he said, prices at the pump will likely dip below the $3.09 low seen in 2022. In the next 60 days, he added, consumers may see “some of the lowest levels since 2021.”

However, Lipow said, some unresolved geopolitical headwinds are continuing to cause concern within the market. These include attacks by Houthi militants on shipping traffic in the Red Sea, as well as tensions between Venezuela and Guyana that could lead to the reimposition of sanctions on Venezuelan oil exports.

The ongoing bombardment of Gaza and concerns about the expansion of the conflict to other parts of the Middle East are also factors to keep an eye on, Gladden said.

“There was some concern that the ongoing war in the Middle East could have left oil supply tightened … thankfully we have not seen that, and I think in the coming months it’ll be an ongoing story, but the market is less concerned now because there is at least some containment” of the conflict, he said.

“Ironically, the Middle East violence broke out during a seasonal period where crude oil prices tend to get hammered,” said Kloza. “These are shoulder months, people aren’t driving as much, it’s too early in the Northern Hemisphere to generate too much demand for winter fuel … people aren’t going to chase crude higher just because there’s violence in Israel.”

That could change very quickly, he noted, “if it were going to be a wider theater of war,” but that doesn’t appear to be the case at this point.

Meanwhile, “OPEC has been a wait-and-see situation,” he said, “which could change given the ongoing conflict in the Middle East. But I think that the market in the past few years has gotten more accustomed to these shocks to the market [and] is starting to see that these price shocks are more short-lived than anticipated, so when it happens again, that tends to have less impact.”

The White House has limited options to affect gas prices, but pain at the pump has repeatedly dogged President Biden’s approvals, particularly in summer 2022 when they hit records in the wake of Russia’s invasion of Ukraine. Although Biden’s approval ratings have remained low, particularly over his handling of the Gaza conflict, lower gas prices could give him a slight boost, Kloza said, particularly among Americans concerned about the cost of living.

“I think 2022 and 2023 were tough years to be dealing with high oil prices and high gasoline and diesel prices,” he said. “There aren’t many things that in a basket of consumer goods you can say it’s as low as in 2021.”

On balance, he added, “gas prices will be cheaper in 2024 than they were in 2023, and 2023 was considerably cheaper than 2022.”