By Roman Orsini
Last week, the average price for a gallon of gas dipped to $3.08, the lowest national average since late 2010, according to TIME. Prices have been steadily declining since July and have begun to drop more significantly this month.
The price of a gallon of gas has several components. According to the Energy Information Administration, 68 percent of the price is based on the cost of crude oil, 13 percent for the price of refining the oil, 12 percent for taxes and 7 percent for distribution costs of the gas station itself.
Lower prices for crude oil are driving the price reduction, as all other price components have largely remained static. The price for a barrel of crude oil has dropped 29 percent since July, from over $110 per barrel to roughly $85, according to Bloomberg.
The United States has experienced a boom in energy production in recent years. In 2010, the U.S. was producing 3.5 million barrels of oil per day — today, production has risen to 8.5 million barrels per day, according to The Economist.
Technologies like horizontal drilling and hydraulic fracturing, or fracking, are responsible for increasing oil production. Fracking involves the pumping of pressurized water, sand and chemicals into shale rock. By undergoing the fracking process, the producers are able to expose previously unreachable sources of oil.
However, fracking has been mired in controversy because of its potential for environmental degradation. Concern has been raised that the chemicals used in fracking may contaminate underground aquifers, poisoning the groundwater. The intense internal pressures created by fracking also have the potential to trigger small earthquakes, according to USA Today. In spite of potential risks, energy producers are continuing fracking, partly allowing the lower gas prices America is experiencing.
Saudi Arabia, despite increasing its own production, is close to being replaced by the U.S. as the world’s top oil producer, according to the CIA. The country seems willing to accept the reduced price of its oil, possibly for the sake of expanding its market share in a period of lower demand.
The International Energy Agency projects global oil demand to be 22 percent lower this year, causing crude prices to fall as well. A slowdown of economic growth in Europe and China are largely responsible for the decline.
U.S. oil consumption is also beginning to plateau. Goldman Sachs lowered its oil price forecast for next year because rising oil output would exceed America’s demand, according to Business Today.