AAA Today

[#1]

We all like to see the price at the pump in decline, and I especially liked filling up for $2.25 per gallon earlier this week. Reporters ask: "Are gas prices headed below $2 per gasoline? Will we ever see gas that low again?"

We've often noted that fuel prices follow consistent seasonal patterns. The rise in springtime with the increase in consumer demand (and the higher production cost of summer blend gasoline) is followed by moderating prices as we approach Labor Day, and then a decline in consumer demand that generally delivers the lowest retail fuel prices in the 4th quarter of every year.

But in 2007, the 4th quarter saw something very different in the direction of the national average price of a gallon of unleaded regular gasoline:

Sept. 5, 2007:            $2.79

Oct. 31, 2007:            $2.89

Dec. 31, 2007:            $3.04

What happened? Those numbers punched huge holes in the theory that fuel prices usually decline in the 4th quarter. But these were not typical times. It was an anomaly that reflected the weakness of the economy rather than any changes in consumer driving behavior. Instead of a seasonal decline after Labor Day, from the 4th quarter of 2007 until July 2008, we saw fuel prices go in one direction: UP. Many analysts note that oil prices rose consistently as the U.S. dollar fell. Speculators drove up the price of crude oil to $147 per barrel in July 2008, and the national average price of gasoline reached its all-time high of $4.11 per gallon on July 17, 2008.

Since then, fuel prices did more than reflect a "seasonal decline" in the 4th quarter of 2008. They fell below $2 for the first time in 2008 on Nov. 21, and dropped further to $1.61 by Dec. 31. (Florida's average price on 12/31/08 was $1.64; Georgia, $1.51; Tennessee, $1.47)

The national average did not return above $2 until March 26, 2009.

Generally speaking, economic growth brings greater demand for products and services; an increase in consumer purchasing and travel might bring higher diesel and gasoline prices, too.

Could fuel prices fall below $2 this year? Certainly. But it might be a mixed blessing.