Gas prices dip to eight-month low despite Middle East tumult

Gas prices are at the lowest they've been since late January despite continued unease across the Middle East. Much of the decline in gas prices is part of the seasonal change in supply and demand, but it also reflects a shifting global oil market. 

Turmoil continues in the Middle East, but you wouldn't know it from the way US gas prices are falling.

Libya has produced a fraction of its oil output throughout the summer. Unrest in Egypt has spread fears of disruption to oil transit routes. The threat of a US strike on Syria has largely subsided, but not without first inflating the price of oil. 

Two years ago, a similar global landscape spurred world leaders to tap emergency oil reserves to stem ballooning fuel costs. Today, gas prices are the lowest they've been in months, and the question of tapping strategic reserves isn't even on the table. The global oil market isn't what it used to be, and that's working in consumers' favor.

"We’re better able to tolerate these supply disruptions because Saudi Arabia is producing more oil and so is the US," says Chris Lafakis, senior economist at Moody's Analytics. What's more, he adds, the 2011 Libyan revolution led to a sharp and unexpected drop in global supply. This time around, the change has been more gradual.      

"The market doesn’t like shocks and that was definitely a shock," Mr. Lafakis says in a phone interview. "If you give the market time to respond to different and changing supply and demand, then it can stabilize pretty well." 

Stabilize, it has. Gas prices averaged $3.46 per gallon across the United States Tuesday, according to AAA, the national auto club based in Heathrow, Fla. That's down 35 cents from a year ago, and it's the lowest the national average has been since Jan. 31.  

Much of that is simply seasonal. Refineries are switching to cheaper, winter-blend fuels and motorists are driving less as they settle into the fall season.

"There's an abundant amount of gasoline in the market with supplies about 10 percent higher than they were a year ago,"  says AAA spokesman Michael Green in a phone interview. "And it's coming at a time when demand typically drops with the end of the summer driving season."

Hurricane season has been quiet, too. Refineries in the Gulf of Mexico have been running smoothly at a time when weather disruptions are the norm. And while unrest continues in Syria, Libya, Iraq and elsewhere, investors' fears eased after the threat of US intervention in Syria faded. 

Those factors could combine to make for a smooth fall for US motorists. But there's still a sturdy floor to gas prices – the national average hasn't dropped below $3.00 since Dec. 22, 2010. And analysts caution that rebounding economic growth could outpace production in the coming months and years.

"We are expecting crude oil prices to tick up modestly – not anything major – but it would add about 10 or 15 cents per gallon on gasoline in the fourth quarter" of 2013, Lafakis says.