Three graphs explain why gas is so cheap right now
It's the perfect time for that road trip on your bucket list, at least financially speaking. Not only is gas cheaper than it has been in years, it could drop by as much as 15 cents more this month, according to Forbes. And because of a national drive towards greater fuel efficiency in our cars, Americans are getting more miles to the gallon than ever before, all of which means more miles to the dollar (nearly 10!) than at any point since 2002.
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At the time of publishing, the current national average was around $1.97 per gallon, a five-year low that's 14 cents cheaper than this time last year, and the general trend towards cheap gas will likely continue. The American Auto Association only expects the price to rise about 50 cents per gallon in the spring, and a new analysis from the U.S. Energy Information Administration (EIA) forecasts the retail cost of regular gasoline to average $2.03/gallon this year, which would make it as cheap as it was in the 80s and 90s.
So, what's behind this shift? A lot of different factors, but not necessarily what you might expect. Despite political rhetoric that has featured prominently in recent White House races, presidents have only a limited control over gas prices—and political leanings have been shown to play a significant role in how American perceptions of such command fluctuate. In reality, American gasoline prices are determined by a host of factors.
According to the EIA, taxes, refining, distribution and marketing account for roughly half of the overall cost of gasoline, with crude oil price determining as much as 46 percent of the total cost on its own. And that's where things get especially tricky, since crude oil cost varies with seasonal/weather-related trends that affect production and distribution, the value of the U.S. dollar, and international market factors. Right now the world is experiencing relative stability in oil-producing nations, which means high production, which means we have an oil glut, which means that crude oil is cheap. And that puts gas money back in your pocket. The spike in the charts above in the late seventies happened during the 1979 oil crisis, sparked by the Iranian revolution and turmoil in the gulf.
While Americans may be enjoying the lowered prices in the moment, recent studies show that they may not really be saving all that many of the pennies from heaven. A report from the JP Morgan Chase Institute found that as gas prices fall, Americans spend roughly 80 percent what they would have saved on other commodities, such as food, entertainment, and electronics.
Further, according to a recent New York Times article, Americans practice what economists call "mental accounting," which means that despite the savings, still spend the same dollar amount on gas as they always would, because that's how they budgeted.
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