As oil falls to $40, US pump prices drop toward $1

Retail pump prices are driven by four factors: oil prices, proximity to refineries, refinery capacity and state taxes and levies. Oil prices have dropped below $40, recently hitting $39.60 a barrel. The recent decision by Saudi Arabia to continue to keep its oil exports high has almost dissolved the OPEC cartel. This guarantees oversupply of crude.

Slowing national economies in the largest countries, which include China, will lower demand. The cost of producing oil from shale deposits is greater in some cases than what it can be sold for; nonetheless, parts of this industry continue pumping, increasing supply.

In some gas stations around the U.S., the price of a gallon of regular has dropped below $1.50. AAA and GasBuddy, two organisations that follow pump prices, say that less than $2 per gallon ($0.53/litre) will be routine around the United States. Already, more than a third of states have prices below $2. As oil prices fall, and refinery capacity stays strong, the price of gas could reach $1, particularly in some stations in low-price states, such as Ohio, Missouri, Texas and South Carolina.

Several states house large refineries or are close to those that do. This is particularly the case near the Gulf of Mexico, and the massive refinery operations south of Houston. Some owned by Exxon Mobil Corp. pump several hundreds of thousands of barrels per day.

Gas prices in

several

states

are low

in large part because of the level of state and federal taxes and levies. The American Petroleum Institute’s October state fuel tax report put the national average at $0.4869 per gallon. However, in South Carolina, a state with extremely low gas prices, that figure is $0.3515. In the Gulf Coast states, the tax level is $0.3719 in Mississippi, $0.3840 in Texas and $0.3841 in Louisiana.

The odds grow each day that gas prices will be $1 a gallon in some areas in the United States, and they may go below that level across much larger regions.