Massachusetts drivers can cruise into Labor Day weekend knowing they will pay less for gasoline than they did a year ago — or three years ago, for that matter — due partly to a surge in US oil production that has reduced the nation’s dependence on foreign oil.
Oil industry analysts admit they’re surprised that oil and gasoline prices aren’t higher, considering this summer’s crises in the Middle East and Ukraine that would have driven prices higher just a few years ago over concerns about supply disruptions.
But instead of spiking, oil prices have plunged this summer, falling below $94 a barrel in New York commodities markets after hitting $107 at the end of June. A year ago, crude traded at $109 a barrel in New York.
That means good news for motorists since crude oil accounts for about two-thirds of the price of gasoline. They head into the long weekend traditionally marking the end of summer with gas prices at their lowest levels in three years.
AAA Southern New England reported that local gas prices fell to $3.45 earlier this week, down 17 cents compared to this time last year, and 28 cents from 2012. The last time prices were lower was 2010, when the nation was just emerging from a deep recession.
By the time motorists hit the roads in droves Friday, gas prices may drop another penny or two, according AAA, part of the nationwide auto services organization.
“The markets were able to adjust to all the troubles in Ukraine and Iraq,” said Mary Maguire, a spokeswoman for AAA.
International oil markets were able to adjust and shrug off potential supply disruptions in the Mideast or Russia because the United States is producing more oil and natural gas, much of it from the Bakken shale fields in North Dakota.
A decade ago, total US oil output ran about 5.5 million barrels per day, but now it’s 8.3 million barrels per day, a more than 50 percent increase, said Patrick DeHaan, senior petroleum analyst at GasBuddy.com, a gas price site for consumers.
Normally, potential oil supply disruptions in the Middle East, where terrorists recently seized entire cities and oil fields in Iraq, and troubles in Ukraine, through which huge amounts of Russian natural gas flows, would have unnerved commodities investors, said DeHaan. In 2008, when global supplies were tight, the slightest hint of trouble in the Middle East sent crude prices soaring. They eventually hit record levels above $145 a barrel in New York.
“But this year, these types of international events don’t seem to matter,” said DeHaan. “It’s really been a surprise, an eye-opener. It’s been remarkable.”
In addition to healthy supplies, demand for petroleum products is also down from historical norms. Before the recent recession, the average demand for oil in the United States was about 20.5 million barrels per day, but it’s now at about 19.3 million barrels, according to the American Petroleum Institute, the industry’s trade group.
Part of that is due to a sluggish economic recovery, analysts say, but part of it results from more fuel-efficient cars and heating systems within homes. Joe Petrowski, managing director of Mercantor Partners, a Framingham private equity firm specializing in energy, added that young people are increasingly living in urban areas, eschewing cars and using mass transit more often.
“My opinion is that prices are going to continue to fall, “ said Petrowski. “It’s simple supply and demand. Increased supplies and lower demand mean lower gas prices.”