June 23, 2024

What’s behind the drop in gasoline prices?

Because dropping they are, after the painful spikes of the past year.

According to industry analyst GasBuddy, average gasoline prices in California fell 29.8 cents a gallon last week. The average price of a gallon of gas was $4.67 Monday, according to a survey of more than 10,000 service stations throughout the state. The survey found the cheapest station in the state was selling gas at $3.35 a gallon.

And it gets better for drivers who were feeling the pinch on their pocketbooks each time they filled up: the drop is 72.4 cents per gallon over the past month and the price is essentially the same as a year ago.

California, the priciest of all states for gasoline, is leading the pack on falling prices, since the national average dropped 15.8 cents a gallon last week, with an average of $3.36. Overall, nationally, the price is down 43 cents a gallon from a month ago, and stands at 1.5 cents more than a year ago.

GasBuddy predicts the price will fall even more by Christmas, and may go below $3 a gallon nationally by then, although as the recent price cap on Russian oil kicks in, this trend could reverse. Also, OPEC+ could cut more production.

While the drop isn’t being cheered by advocates in the fight against climate change, it should be welcome economic news for the millions of drivers who did not suddenly stop filling up their tanks when the price was well above $6 a gallon earlier this year, just one of many inflationary blows that landed in 2022.

Amid this dramatic change in prices, Gov. Gavin Newsom is continuing his quest to tax oil companies for exorbitant profits. Last month, before the midterm election, President Biden threatened a similar federal tax on major U.S. oil companies unless they increased production.

But if it was the oil industry’s voracious appetite for windfall profits behind the dramatic rise, abetted by Russia’s war against Ukraine, then what are we to make of the recent drop?

Experts say the drop in prices has been due to several factors, including refineries in the state resolving issues that caused prices to spike, as well as the state switching to a winter blend of gas that is cheaper to make. AAA reported last week that “as demand remains low and stocks grow, drivers will likely continue to see pump prices decrease.”

Newsom, though, is accusing the oil industry of intentionally “price gouging” consumers at the pump as retribution for the state’s policies to phase out dependence on fossil fuels in an effort to curb climate change.

The oil industry is mostly silent about prices, though executives have long blamed the state’s gasoline taxes, dependence on a small number of oil refineries and environmental regulations for prices that reached a record high of $6.43 a gallon in June.

At a recent state hearing on gas price spikes, state regulators said Californians usually pay the highest retail gasoline prices in the nation because of higher taxes, production and environmental costs, the isolation of the market, more expensive costs for crude oil and that “maintenance issues” at the five refineries in the state were often related to price spikes.

Companies that operate oil refineries in California declined to participate in the hearing. But, analysts say that any tax on profits will be passed along to consumers. The oil industry says it will mean state refineries would either export the production outside California or just cut production, which would drive up in-state prices.

Newsom is no longer calling his proposal a “tax” instead calling it a “price-gouging penalty,” which would be imposed on profits above a still-to-be-determined threshold. Here’s why the linguistic change: Passing a new tax would require a two-thirds vote in the Legislature, while imposing a “penalty” will only need a majority vote. This matters, because the oil industry is a major campaign contributor for politicians in both parties.

The political reality is this: If the oil industry keeps prices low, any support for the tax, because that’s what it is, will drop as well.

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