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Which States Have the Cheapest Gas Below $3 a Gallon?

The average cost of regular gasoline has tumbled since topping $5 over the summer

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If you’re looking for some good news, look no farther than your gas station: Regular gasoline, which peaked at 5.02 a gallon in June, now costs an average $3.36 a gallon. If you have a 12-gallon fuel tank, that’s a savings of $19.92 every time you fill up. “It’s coming at a good time,” says AAA spokesman Andrew Gross. “Everyone is getting a little extra in their wallet.”

These are national averages, and you’ll see wide disparities in gas prices across the country. In Texas, for example, the average cost of a gallon of gas is just $2.78, the lowest in the nation. In 11 states — Alabama, Arkansas, Georgia, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee, Texas and Wisconsin — gas costs less than $3 a gallon.

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In Hawaii, a gallon of regular will set you back $5.18, according to AAA. California ($4.67 a gallon) comes in second, with Nevada third at $4.40. Overall, the average cost of gas nationally is just a penny higher than it was a year ago. By the end of this week, Gross says, energy inflation could turn to energy deflation on a 12-month basis.

What’s driving prices down?

The biggest driver of gasoline prices is the price of oil. According to the Energy Information Administration, the price of crude oil accounts for 53.6 percent of the cost of a gallon of regular gas. Federal and state taxes burn up 16.4 percent of the cost of gasoline, while distribution and marketing smoke another 15.6 percent. The remaining 14.4 percent goes to refining costs and profits.

The price of a barrel of West Texas intermediate crude oil peaked in March 2022 at $123.60 a barrel; as of Dec. 6, it’s about $77 a barrel. One reason is winter: The days are getting shorter, and people tend to drive less in the dark, Gross says. 

Another factor is China, the second-largest consumer of oil after the U.S. The Chinese economy has been sputtering recently, in part because of its zero COVID policy, which closes schools, businesses and shops down if even a few COVID cases are found nearby.

What about supply? ”There has been a big buildup in stocks of gasoline all around the country,” Gross says. The U.S. is the largest oil producer in the world, accounting for 14.5 percent of all oil production, according to the Energy Information Administration. In fact, the U.S. produces so much oil that it exported a record 6 million barrels a day in the first half of 2022. “I’m old enough to remember when we exported virtually nothing,” says Tom Kloza, global head of energy analysis for the Oil Price Information Service.

From 2016 through 2019, the U.S. produced about 9.3 million barrels of oil a day, Kloza says. The nation’s vehicle fleet is getting more fuel efficient: The average car on the road got 31.3 miles to the gallon in 2021, according to the Environmental Protection Agency (EPA), up from 22.6 miles per gallon in 2001. Also, electric vehicle (EV) sales are soaring: Drivers bought about 174,000 EVs in the first three months of 2022, compared with 68,000 in the first quarter of 2020, according to Statista. “The improvement of the fleet means that we are never going to get to that 9.3 million barrels-a-day demand level,” Kloza says.

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Oil producers know that demand is slowing. The Organization of Petroleum Exporting Countries plus several other oil-producing countries said they would continue to cut production by 2 million barrels a day. The initial announcement, in October, pushed up oil prices “for half a second,” Gross says. Since the announcement, the price of oil has continued to fall.

Worries about the flow of oil from Russia — the world’s third-largest oil producer behind the U.S. and Saudi Arabia — seem to have eased a bit. Russia’s economy is almost entirely driven by the sale of raw materials: oil, minerals and timber. The Russians really can’t cut oil production while fighting a war, because they don’t have a lot else to sell. “No one is getting in line to buy a Russian cellphone,” Gross says.

President Biden tapped the U.S. Strategic Petroleum Reserve for about 200 million barrels, which did help reduce the price of gasoline. As oil prices approach $70 a barrel, the U.S. will probably start replacing that oil, which could prop prices up. (The oil is held in salt domes in Texas and Louisiana.) Even with the release of oil from the reserve, the U.S. still has about 1,000 days’ oil supply remaining, Kloza says.

Oil prices will likely stay low for at least a few weeks. “January is typically the shakiest month for gasoline demand,” Kloza says. He estimates demand for oil to be 7 million barrels a day; the U.S. is producing more than 9 million barrels a day. In the short term — the next 60 days or so — that should spell lower oil prices, and lower prices for gasoline, too. Currently, he says, refiners can make good money on jet fuel and diesel and live with lower profit margins on gas. “Gasoline is really the unwanted hydrocarbon now,” he says.

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