Why Texas has the lowest gas prices in the country

It’s a continuation of a monthlong drop in gas prices – but we shouldn’t get used to it, says energy analyst Matt Smith.

By Alexandra HartDecember 18, 2023 11:53 am,

Gasoline prices in Texas recently dropped to their lowest levels in nearly three years, according to AAA. The current average is $2.57 a gallon — making Texas the state with the lowest average gas price in the nation.

This is a continuation of a monthslong drop in gas prices. Matt Smith, energy analyst for Kpler, joined the Standard to explain what’s behind it.

This transcript has been edited lightly for clarity:

Texas Standard: You know, I’m always afraid to think that this is the new normal – wishful thinking, I guess. But as these prices continue to drop, what are we looking at here? What’s going on?

Matt Smith: I know it kind of feels like the new normal, but we just can’t get complacent, OK? So as you mentioned, with Texas, we could break through $2.50 a gallon. The national average is charging towards breaking below $3 a gallon here, too. So really good for our pocketbooks, particularly given us heading into the holiday period here.

But as I mentioned, we shouldn’t get used to this. You know, there’s probably limited downside from from here on out, given that we’ve worked in the oil price drop, which is the biggest driver of gasoline prices. And then we’re starting to see prices rising here a little bit, too. So, you know, prices are likely to get a bump as we head into the holiday period when we see increasing traffic and you see that reflected through the pump.

Looking back at what happened during the Thanksgiving travel season – TSA reported the biggest travel season on record, at least at the airports – with gas prices being what they are, what are the expectations going into the Christmas holidays?

That it is going to be busy. So, yes, similar to Thanksgiving, AAA is projecting 115 million travelers are going to head 50 miles or further from home over the holiday period. That’s up about 2 1/2 million – so that’s about over 2% – versus last year. It’s the second highest – it isn’t a record – since records began in 2000; 2019 still remains the busiest Christmas period.

And so in terms of road tripping, they think 104 million people are going to be driving to their holiday destinations. But you mentioned the record: similar to Thanksgiving, for Christmas, it’s going to be at the airports. So they’re expected to be the busiest they’ve ever been: 7 1/2 million air travelers predicted this holiday season. Among other reasons, this is apparently because flight prices are slightly lower than last year.

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There’s been so much going on on the bigger geopolitical stage that I really do wonder how long this is going to go. We’ve been hearing about these rocket attacks in the Red Sea – U.S. and allied vessels being attacked. How is that going to affect oil prices longer term?

Yeah, well, if we focus just near-term here, as you mentioned, we’ve spoken in recent months here and we haven’t seen these geopolitical events affecting oil prices because it’s not been impacting supply. And now it feels like this may be that pivot.

We’ve had some extreme escalation over the weekend: Houthis are attacking vessels that are linked with Israel at the Strait of Bab-el-Mandeb, which is essentially just by Yemen. And that’s the tiny strait as you go into the Red Sea, go up to the Suez Canal.

And that’s a real choke point.

Yeah, exactly. It’s like 10% of global petroleum flows are going through there. And you’ve had container ships that announced prior to the weekend and over the weekend that they’re going to divert to go all the way around Africa and the Cape of Good Hope.

And now just today, you’re starting to get other oil companies as well announcing these things. So this is starting to impact the supplies. And so naturally, you’re seeing oil prices ticking higher today.

You factor that in; then you factor in the seasonality factors – I mean, there is a point at which normally prices are going to start to swing back up, the cyclical patterns that you can observe in the data. When are you expecting prices to start ticking back up again, given all these factors we’ve been talking about?

Well, we may be seeing a bit of bottoming out here now. You know, from a speculative – in terms of like a betting on oil price – we’ve seen a lot of bearishness that has pushed these prices to multi-month lows here; we may be at the point now where we’re seeing a bit of a turnaround going forward here.

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