Yahoo Finance is answering your most-asked finance questions of 2014 as searched on Yahoo.com. Coming in at number seven, you asked, “Why are gas prices going down?”
Because oil prices are going down! So the real question is, “Why are oil prices going down?”
Despite a recent swing upwards due to conflict in Libya, the price of crude has essentially been in free-fall since June. We're talking about a roughly 48% drop-- set to be the largest annual drop since 2008. This recent 1% uptick isn't likely to last either, according to Bloomberg. Their analysts say that the market has long been aware of the risks in Libya and that they're not enough to reverse any major trends.
The question of “why” is basically a case of economics 101 - supply and demand. On the demand side - global economic activity is weak. We might be in the middle of a comeback here in the U.S., but Europe's back in a recession, Asia isn’t looking particularly solid, and emerging markets aren’t exactly the bright spot they once were.
On the supply side - no one's paying attention to demand. The world is producing a staggering amount of fuel. The U.S. in the middle of a massive energy boom thanks to shale and fracking and is now the biggest producer of oil in the world. The thing is - OPEC is not so crazy about that. The organization steadfastly refuses to decrease production to accommodate increased US production.
That means there's a heck of a lot of oil out there to buy, and not as much demand for it.
The million dollar question, actually more like the trillion dollar question, really is, “How long will oil (and gasoline) prices keep falling?”
Some analysts predict oil prices will drop as low as $50 a barrel. That would translate to gas prices somewhere below $2.50, where they already are in a handful of states.
Which is to say, there's a good chance we'll still be having this conversation well into 2015.
More of your top finance questions answered:
Number 8: Who is the richest man in the world?
Number 9: Is social security taxable?
Number 10: What is Bitcoin and how does it work?