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Hi Taylor
- I am very happy to finally be paying less for gas after a rough
couple of months. Do you know what exactly changed? It feels like
prices ramped up and then came back down without any obvious shift
in policy or world events, but maybe I'm missing something. - Melissa
Hi Melissa - I agree! A trip to the gas station feels a lot better
now than it did a few months back. It's also true that the price drop
has come without a singular, identifiable catalyst, mostly because
a lot of factors play into the cost of fuel. As much as certain people
want to place blame and take credit for what you pay at the pump,
it's not always that black and white. |
1. Supply.
First and foremost, oil is a global commodity. In the U.S., we
produce a ton of the stuff, but we import even more. There are
fifteen different nations in OPEC producing crude oil, and those
member countries have more of an impact on global prices than
anything any American politician could say or do. If you look
at a timeline of 2022, prices ramped up right after the invasion
of Ukraine and the subsequent sanctions imposed on Russia. That's
because the global supply took a hit, and gas companies had to
raise prices in response. Again, not the only factor but a clear
marking point for when gas started getting more expensive.
2. Demand.
Summer is always a pricier time for gas because travel goes up.
That includes air travel, and every flight burns through a ton
of fuel. When we couple the facts that the global market was squeezed
for supply and global demand was still high, it's no surprise
that the average price per gallon went up to $5. What happened
next? Travel hit its peak, and then people started hunkering down.
At that point, a gallon of gas was expensive enough that people
actually altered their behavior to drive less and spend less.
Demand dropped, and prices followed suit.
3. What's next? It's great that prices dropped, but there's
no guarantee the trend will continue. Hurricane season can really
disrupt U.S. production and create another price spike. International
conflicts still have a say in what we pay at the pump, and inflation
and supply issues affect the refineries' operating costs which
in turn affect your wallet. The good news is that the dollar is
strong right now, and a strong dollar always bodes well in the
global commodities market.
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| The price jump
from earlier this summer was definitely a confluence of issues, and
any price reduction is because of multiple factors as well. Whatever
those factors may be, let's hope the cost of gas keeps moving in the
right direction. Thanks for the question, Melissa! |
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an offer or solicitation for the sale or purchase of any specific
securities, investments, or investment strategies. Investments involve
risk and, unless otherwise stated, are not guaranteed. Be sure to
first consult with a qualified financial adviser and/or tax professional
before implementing any strategy discussed herein. To submit a question
to be answered in this column, please send it via email to Question@GoFarWithKovar.com,
or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.
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