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4 reasons gas prices will drop

It just gets better for drivers
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It just gets better for drivers © cabania/Shutterstock.com

It just gets better for drivers

When you fill the tank, have you noticed that it leaves your wallet a little less empty? Gas prices have been falling for months, and they should continue their decline throughout 2015.

The national average is expected to drop 23 percent in 2015 to $2.60 per gallon, according to the federal Energy Information Administration. If that projection holds, it would mean an average savings of 77 cents per gallon throughout the year.

That's a lot more than pocket change. According to a Bankrate analysis of government petroleum statistics, each American driver stands to save about $452 on gasoline in 2015.

All told, the lower prices could pump more than $100 billion into the American economy over the course of the year.

Why are gas prices likely to keep falling? You can thank a variety of market forces that are working together to push prices lower. Here are four of the main ones, and how each will make it less expensive to drive in coming months.

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Reason No. 1: More oil out there

Reason No. 1: More oil out there © iurii /Shutterstock.com

American oil producers have been on a tear lately. Thanks to new drilling in the Gulf of Mexico and the increased use of techniques like hydraulic fracturing, or "fracking," on land, the U.S. is awash in crude.

Domestic oil production has increased every year since 2008, which has contributed to a growing world supply. Meanwhile, American refineries are buying fewer barrels of more expensive foreign crudes.

The increased oil supply in the U.S., combined with weakening expectations for the global economy and world oil consumption, will likely push oil prices lower in 2015. As the cost of oil falls, so will the price of petroleum products like gasoline.


Reason No. 2: Oil price has been falling

One of the primary reasons why your gas prices rise or fall is the fluctuation in the price of crude oil. U.S. refineries buy several million barrels of oil every day to supply the world's biggest economy, so even small price changes make a big difference.

When crude oil prices go up or down, gas prices tend to follow. And right now, oil prices are on the decline.

Oil prices have been falling for several reasons, including the increased U.S. crude production and an outlook for weaker growth in global oil demand. Meanwhile, the Organization of the Petroleum Exporting Countries, or OPEC, decided toward the end of 2014 not to manipulate prices by restricting oil production.

Overall, government energy forecasters expect crude prices to be significantly lower in 2015. The Energy Information Administration says the U.S. benchmark price could drop to $62.75 per barrel in 2015 -- a 33 percent discount from 2014. That means refineries would pay less for crude oil, and at least some of that savings should be passed on to drivers in the form of cheaper gasoline.


Reason No. 3: No major disasters

Reason No. 3: No major disasters © Matt Trommer/Shutterstock.com

The Gulf of Mexico is home to some of the most promising oil fields in the world. It's also especially vulnerable to hurricanes.

That makes the Gulf a rich and perilous place for satisfying America's energy needs. But the region hasn't seen much hurricane activity in a while, and that has contributed to declining gasoline prices.

A well-placed storm can cripple thousands of oil rigs in a weekend, and occasionally one does. Gas prices usually spike in reaction, as nervous refineries and petroleum traders gauge how long the supply disruption will last.

For example, in August 2012, gasoline prices surged as Hurricane Isaac whipped through the Gulf and shuttered 1.3 million barrels per day of refining capacity. In 2005, gas prices jumped more than 46 cents in the week after Hurricane Katrina made landfall, according to government data.

Mother Nature gave the Gulf a break in 2014. The National Oceanic and Atmospheric Administration says the Atlantic saw only eight named storms, including two major hurricanes, and none of them came near U.S. oil facilities in the Gulf of Mexico.


Reason No. 4: Cheaper blends in winter

Reason No. 4: Cheaper blends in winter ©TTstudio/Shutterstock.com

Did you know that there are many different recipes for gasoline? Thanks to different state and local regulations, your neighborhood pump probably sells a different blend of gas than pumps in other states. And there are seasonal varieties, too -- summer gasoline and winter gasoline.

Winter gasoline is usually the cheapest.

Every September, the government starts to ease off clean-air standards for oil refineries, allowing them to make gasoline with cheaper hydrocarbons like butane. Refineries would love to benefit from the cost savings, but they usually don't. Petroleum traders know they can buy gasoline at lower prices without hurting the refinery's profits, and prices usually drop in response, says Tom Kloza, the chief oil analyst at GasBuddy.com.

Refineries usually begin making cheaper "winter-blend" gasoline between September and October every year. Americans will pump it into their tanks until spring.

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