December 6, 2001 | By: Aimee D. Heald
LEXINGTON, KY.

Gasoline prices are dipping below $1 per gallon across the Commonwealth. Gregg Ibendahl, agricultural economist for the University of Kentucky, said gas prices have not dropped this much since July 1999.

“The average weekly United States retail gas price for the first week of December is $1.11,” he said. “This is 38 cents below where it was a year ago.”

Ibendahl said gas prices have fallen 47 cents since mid-September, even dropping more than 65 cents in the Midwest in the same time span.

“Farmers can take advantage of lower gas prices,” he said. “They may be able to lock in the low prices for fertilizer and fuel. They just need to ask their suppliers.”

In only five months, we have witnessed the largest one-year price range in gas prices since the Energy Information Administration started tracking weekly prices, he said.

While many factors affect U.S. gas prices, three factors have the most influence: change in crude oil prices; seasonal variance in the gasoline supply and demand balance; and any unusual events or trends that affect the supply and demand balance.

“Crude oil prices have declined over the last 12 months due to both weakening global demand and continued steady supply,” Ibendahl said. “When inventories became low in 2000, we saw a dramatic increase in gas prices. Since then, inventories have built up to more typical levels. OPEC has been reluctant to cut production until others do and they are warning that oil prices may reach $10 a barrel.”

Historically, the demand for gasoline drops in the winter months and rises with the temperatures in the spring and summer. Ibendahl said the demand during the summer can be as high as one million barrels per day higher. The EIA says this demand difference usually results in gas prices being around 10 cents a gallon lower in the winter.

The third main factor affecting gas prices, unusual events, may be more true this year than in recent history.

“This year, we have certainly had more unusual events than is typical,” Ibendahl said. “The effects of a refinery fire in the Midwest, coupled with EPA guidelines for reformulated gasoline led to some spot shortages of gas and temporary high prices last summer.”

Ibendahl also said a weakening economy combined with the September terrorist attacks reduced the demand for petroleum products. Since the terrorist attacks specifically reduced the demand for jet fuel, there has been a slight increase in gas production.

According to the EIA, all of these effects have not yet been felt at the retail level, which could mean another five to ten-cent drop in gas prices. Ibendahl said if the OPEC predictions about crude oil prices are true, gas prices may drop even more.

Contact: 

Gregg Ibendahl 859-257-3616