U.S. oil prices dropped 10% on Friday, the biggest fall since 2014. Part of this was due to an OPEC disagreement with Russia on production levels. The plunge was partly due to the fact that coronavirus will harm businesses enough worldwide that demand will be sucked out of the market. That process apparently already has started in China.
Gasoline prices are almost directly tethered to oil. Other factors, which include taxes and refinery capacity, are important as well, but to a lesser extent. Most estimates are that oil prices are 60% of the price of gas.
West Texas Intermediate (WTI) crude has had a breathtaking drop in just a few days, from $53 a barrel on February 23 to just above $41 on Friday. That is a 23% sell-off in less than two weeks.
The average price of a gallon of regular gas has dropped recently, according to AAA. The price is just under $2.40 nationwide. That is down from $2.45 a week ago. If gas prices drop as much as oil prices, they will be well below $2 within a few weeks. Gas prices generally lag oil prices by several weeks, and sometimes longer.
If the price of oil remains around $40 for several weeks, the price of gasoline almost certainly will dive by Memorial Day, when driving in America hits one of its peaks. While that may make driving more affordable, the effect of the coronavirus may have already undermined the U.S. economy.
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While $2 a gallon gas may be on the way, that will probably coincide with a host of economic problems.
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