Can we see lower gas prices by January?

Can we see lower gas prices by January?

High gas prices – it’s nothing new. Inflation has been a critical topic lately. In the early part of 2020, retail gas prices dipped below $2.00 per gallon then stayed below $2.50 for the most part (may not apply to every region). The standard deviation of 2020 monthly prices was 0.189, while the SD between April 2020 to December 2020 was 0.128. That was relatively stable compared to what we have seen since 2005 (ex. 1).

There was an apparent anomaly in price changes in 2008 when the market crashed. Gas prices stayed high then fell sharply by December. Prices stayed consistent as we recovered from the recession for the next two years and increased as the market recovered.  

Prices continued to stay high from 2011 to 2014. By the end of 2014, gas prices dipped well below $3.00 per gallon into the low $2.00 range. One of the contributing factors is the domestic drilling that kept the global crude oil prices stable. In May 2014, domestic oil production increased to 4.36 million barrels a day (source). The domestic drillers looked to find the equilibrium production level as the production level grew to over 5 million barrels a day by May 2015. The production level continued to go up to 8 million barrels a day then dipped below 8 million in 2020 as the demand steamed off.

It seems like the domestic production level has been growing month over month, which is not surprising since the demand is likely growing fast. It is at about the same level as it was in 2019. Can the production level continue to grow here in the US? OPEC learned its lesson in the past by allowing the prices to go up too high. As the prices continue to go up, domestic drillers with higher operational costs can increase production or restart their operations. Not surprisingly, OPEC is sticking to an output hike for now, even when oil prices dipped slightly (source). Can we see mid $2.50 by January?

2005 to 2021 Retail Gas Prices (Source)

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