Oil prices tanked last week because the US and 27 other members of the International Energy Administration (IEA) agreed to release 60 million barrels of oil reserves into the global market over the next 30 days. Many Americans are hoping that a reduction in gas prices will boost the economy.
The recent increases in gas prices are a big contributor to Americans’ lack of confidence in the U.S. economy. In a recent Wall Street Journal/NBC News poll, 45% of those surveyed said the recent increase in gas prices has affected them “a great deal,” outranking concerns over food prices, the drop in home prices or even the unemployment rate.
AAA spokesman Troy Green told reporters, “It will be interesting to see what this move will mean in terms of gasoline prices nationally and what that potential will mean for consumer demand and the willingness of Americans to get back on the road.” Last week AAA projected at 2.5% decline in Fourth of July weekend traffic, or about 1 million fewer travelers compared with last year’s holiday.
Consumers tend to dramatically alter their driving habits when gas prices hit $3.50 a gallon. As a general rule of thumb, every $1 a barrel increase in oil adds an extra 2.2 cents per gallon of gas.
Tapping the oil reserves is extremely rare and the fact that gas prices are declining during the peak summer driving season is even rarer. Gas prices typically are elevated during July and August, and tend to hover at their highest points of the year until after Labor Day.
Gas prices have fallen since late April and early May, but they are still about 91 cents higher than a year ago, according to the U.S. Energy Information Administration. Every 10-cent increase in the price of gas costs consumers approximately $39 million a day.
Historically prices are highest in July and August because Americans drive the most during these two months, according to the Federal Highway Administration. Also, oil companies switch to a more expensive summer blend of gas, adding pressure to already high prices.