The average US price of regular gasoline is now $2.75 a gallon, according to AAA. This is down from $2.87 a month ago. However, it’s 30 cents a gallon higher than Memorial Day last year – but prices were on the rise then, not falling.
The last time gasoline prices fell leading up to Memorial Day was in 2005, says the Energy Information Administration (EIA). Back then, prices dropped about 10 cents a gallon from the beginning of May to the end of that month.
Behind the recent fall, says Neil Gamson, an analyst at EIA in Washington, is a drop of about $20 a barrel in the price of crude oil. On May 3, a barrel of West Texas Intermediate sold for $86 a barrel on the New York Mercantile Exchange. By May 25, it had dropped to $65 a barrel.
“A lot of the drop is due to the uncertainty around the European debt situation, with the prospects of diminished economic growth in Europe and even the US,” Mr. Gamson says. Reduced economic growth usually means less demand for energy and cheaper oil prices.
At the same time, crude supplies have been plentiful. “There is a big surplus of oil at Cushing,” says Gamson, referring to the Oklahoma storage hub that holds anywhere from 5 percent to 10 percent of US inventory.
Some of that oil is being used to meet rising gasoline demand as the economy has picked up. “Demand is definitely on the upswing, but not overwhelmingly strong,” says Sander Cohan, a gasoline analyst at Energy Security Analysis Inc. in Wakefield, Mass.