Falling Gas Prices May Be Sign of Looming Economic Disaster

The decrease in the national average of gas prices may be a sign of economically turbulent times to come.

The average price per gallon of gas in the U.S. on Thursday is $3.47, according to AAA, representing the biggest weekly decline Americans have experienced in nearly four months.

"Increasing supply and fewer drivers fueling up have pushed pump prices lower," AAA reported. "As demand remains low and stocks grow, drivers will likely see pump prices keep falling."

Energy Information Administration data last week showed gas demand fell from 8.74 million barrels to 8.33 million barrels per day, while domestic gasoline stocks rose by more than 3 million barrels to 211 million barrels.

Patrick De Haan, head of petroleum analysis at GasBuddy, tweeted Wednesday that gas prices nationally were just 6.2 cents higher than the same time last year. It is also the lowest average since February 7, or about two and a half weeks before Russia invaded Ukraine.

When asked how global economics and COVID lockdowns in China played into decreased prices, De Haan told Newsweek that COVID concerns and lockdowns in China are stifling demand.

"U.S. demand is also easing, and refiners continue to process oil at a very high seasonal rate, helping on supply," he said. "Things are all going right for once and consumers are benefitting. But the EU price cap on Russia December 5 could shift things, a bit too early to tell, however."

The European Union is currently deliberating whether to put a $65-$70 price cap on Russian oil, Reuters reported, with a Biden administration official saying that recently quoted Urals prices in the $52-a-barrel range do not represent broader pricing.

EU member countries Poland, Lithuania and Estonia are among those pushing for much lower per-barrel prices, such as $30, in an effort to further financially squeeze Russia.

Reports on Thursday indicated that Poland is the lone country out and has a deadline to agree to a $60-per-barrel price cap.

"We're heading into serious recession in Europe and further economic slowdown in the U.S. as people struggle with high interest rates and worry about their personal wealth and savings," Ben Cahill, an energy security analyst at the Center for Strategic and International Studies, told The Washington Post.

"Add it all up and it creates a bleak picture for oil demand. Prices are reflecting that," Cahill added.

Kajal Lahiri, a distinguished professor of economics at the University of Albany, told Newsweek that a multitude of factors are contributing to the current drop in domestic oil prices.

They included the weakening of the European and Chinese economies, consumers' adjustment to gas consumption in response to a previous steady increase in prices at the pump, and geopolitics—all playing out simultaneously.

"But the current downward drift can as well be part of a cyclical movement in oil prices; continued increase was not sustainable and hence by definition prices have to go down in order to rise again when the opportunity will come," Lahiri said.

The EU deliberation is in response to a recession experienced by European countries, he added. That equates to decreased oil demand, affecting what Russia can sell at certain price points.

Lahiri said ultimately that the bidding and futures markets overall have a psychological effect on consumers.

In the U.S., for example, he said consumers are still spending a lot of disposable income—just not as much at the gas pump because people are making more deliberate choices.

"[People] try to avoid driving and people think twice, that has an effect on demand....It's a very weird economy, unprecedented in many ways," Lahiri said.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, are meeting December 4 to decide whether to cut collective crude oil output by 2 million barrels per day through 2023.

That meeting comes after OPEC announced a cut to oil output by 2 million barrels per day, or approximately 2 percent of global supply, in October. It was a decision that "disappointed" President Joe Biden.

Newsweek reached out to AAA and the EU for comment.