Gas Prices May Make Another Run to $2 a Gallon

WASHINGTON, D.C. — Gas prices have hit the lowest average price for this time of year since 2009, and AAA is predicting prices could fall to $2 a gallon in many parts of the country by the end of the year.

According to the association's latest monthly gas price report, cheaper oil costs and the resolution of some refinery issues are the key drivers behind the declining prices at the pump, with the national average sitting at $2.66 as of Monday. It marked 16 days in a row of falling prices.

"It feels good to see gas prices drop during the middle of the busy summer driving season. Millions of people are hitting the roads right now and these gas savings should make their trips more affordable," according to AAA.

Gas prices averaged $2.75 per gallon in July, which was the lowest average for the month since 2010. In addition, Monday's average gas price was about 85 cents per gallon less than a year ago. The national average has dropped about 14 cents per gallon since hitting a 2015 high of $2.80 on June 15.

According to AAA, lower gas prices and a growing economy have helped motivate people to drive more this year. U.S. consumers drove 275.1 billion miles in May, which was the highest monthly total on record, according to the most recent report from the Federal Highway Administration. It is likely driving has continued to increase this summer as consumers take long road trips.

July's declining prices followed in last July's footsteps. This is the second year in a row that gas prices dropped in July. Last year, average prices dropped 16 cents per gallon during the month before eventually plummeting by $1.65 per gallon through January.

Diesel is also making headlines. The average price of diesel is only seven cents per gallon more than gasoline today. The difference between gasoline and diesel reached its most narrow point since 2009 in July. The average price of diesel in January was 90 cents more expensive per gallon than gasoline.

And more good news is on tap. AAA said gas prices should continue dropping to catch up with the recent decline in the cost of crude oil. All things being equal, a $12 decline in crude oil costs could reduce gas prices by as much as 29 cents per gallon. 

Given that prices have already dropped about 14 cents per gallon since reaching a 2015 high in June, drivers could see prices drop another 15 cents per gallon in the near term if oil remains stable and refineries operate at current production levels. Gas prices could drop even further if oil continues to fall and gasoline supplies grow larger in August, the association added.

"The recent price declines are hopefully just a precursor of much bigger savings to come at the pump. We could see many parts of the country make another run toward $2 per gallon by the end of the year if everything keeps running smoothly," AAA explained.

The end of the summer driving season often leads to lower gas prices, which may drop more dramatically after Labor Day. In addition, gas stations in many parts of the country can switch over to less expensive winter-blend gasoline on Sept. 15. The Southeastern and Central United States are the two regions most likely to see a large number of gas stations offering prices around $2 per gallon this winter.

However, there are a number of factors that could keep gas prices from falling as expected, such as major refinery disruptions, higher oil costs, a major hurricane or conflict overseas. In addition, all parts of the country may not see prices drop as quickly. For example, refinery problems continue on the West Coast, which raises the possibility of price increases for that region if supplies grow tight. 

VARIATIONS BY STATE 

Looking at specific states, California currently has the most expensive gas prices in the country, with a statewide average of $3.79 per gallon. The state's average is about $1.50 more expensive than South Carolina's average, which is $2.29 per gallon and the nation's least expensive market for retail gasoline.

The five most expensive state averages are California ($3.79), Alaska ($3.48), Hawaii ($3.29), Nevada ($3.25) and Washington ($3.18). The states with the lowest average gas prices are South Carolina ($2.29), Alabama ($2.29), Mississippi ($2.33), Ohio ($2.36) and Indiana ($2.37), according to AAA.

Gas prices remain relatively high across the Western U.S. due to ongoing refinery problems and strong demand. California, which has the largest concentration of drivers in the region, has experienced a number of refinery issues and supply challenges.

A handful of U.S. gas stations across the nation, though, are already selling gas for less than $2 per gallon. By comparison, about 11 percent of stations are selling gas for more than $3 per gallon today.