Consumers in the United States, being the world’s largest consumer of fossil fuels took a sigh of relief as fuel prices finally falling in the US in recent weeks. After exceeding 5 dollars per gallon last month, the current average is now 4.5 dollars per gallon for regular gasoline across the country according to the American Automobile Association. But this price, though already a big decline from last month, is still 1.5 dollars higher compared to the same period last year.
This table shows the national average of gas prices in the United States as of July 15, 2022 Source: AAA.
Economists predict that prices will continue to go down in the next coming weeks but they are not sure how long this trend will persist. Global demand for fuel continues to decline due to the steep price in the last few months. With the dollar gaining over other currencies, prices of fuel will not experience the same decrease as it has on the US for countries who are importing fuel. With supplies still not recovering, it is still uncertain when the reduced price will continue to help motorists.
Why are fuel prices declining?
The demand for gasoline has been on the decline worldwide due to the higher price. In the US alone, jet fuel and diesel are down 10% compared to the same period in 2019 even before the start of the COVID pandemic. According to the Energy Information Administration, the low demand prompted gasoline stations to reduce the prices of fuel.
With the dollar gaining over other currencies in most parts of the world, it also made a big impact on the price of fuel. This makes traders who purchase fuel in international markets need to shell out more cash in order to make the same purchase a month ago.
Across the whole United States, almost all the states have shown a decline in prices with the current national average for diesel only at 5.572 dollars per gallon as of July 15, 2022, compared to 5.780 a month ago. However, this is still way higher than the national average from a year ago at only 3.267 dollars per gallon.
The national average for diesel is at $5.572 per gallon from $5.780 last month. The price is still far from the $3.267 from the same period last year. Source: AAA
What can we expect in the coming weeks?
Predictions are mixed from the economic field in terms of possible trends in the coming weeks. Some of the factors that are being looked into are the demand from consumers, economic activity in major economies of the world, and stabilization of supply.
As prices are still steep compared to last year, people are still not that confident to get back to the usual use of private vehicles. With China reporting a new spike in cases of COVID-19 and other fuel-importing countries, demand could still be more volatile than it already is. Supplies in the US have also not recovered due to the reduction of new oil exploration and refining facilities that would further affect the stability of prices in the coming weeks.
What are the effects of the drop in fuel supply in the logistics industry?
An expected increase in logistics activity
Many logistics companies have taken drastic measures in the past few months to compensate for the cost that went to high fuel prices. Some implemented cost-saving measures such as limiting areas of operation and extending delivery schedules to accommodate more freight movement while saving money on fuel.
With the decrease in fuel prices from the last week that is expected to go on for the next few weeks, logistics operators might be able to restore some of their services which will ultimately increase activities in the logistics industry across the United States.
Reduction of freight charges
In order to accommodate more deliveries while keeping business running, many logistics operators were forced to increase their costs in the past few months. With the fuel prices now stabilizing, many business owners can now negotiate better pricing for their shipments. However, these prices will not be as good compared to last year since fuel prices are still considered to be very high. But, any reduction in operating costs is good for business and this will definitely help logistics operators and business owners to formulate more competitive pricing.
Increase in demand for deliveries
With many people opting to stay indoors and the new trend of employees now working from home as a result of the COVID pandemic and the high oil prices, more people are choosing to have their needs delivered to their homes.
Many US companies are now ramping up their fulfillment methods to cater to both perishable and non-perishable items. You can basically order anything online nowadays from your nearest supermarket.
With delivery prices expected to reflect the savings earned by operators in reduced fuel prices, many people will be more tempted to order their needs online. This will be good for the logistics industry as is expected to cover the lost revenue from the last few months.
Effects of falling oil prices on the logistics industry
As fuel prices are just starting to go down, it provides a needed break to all consumers who rely heavily on goods delivery. This will bring a positive impact to both oil dealers and logistics operators as it will expectedly bring the demand higher. We can only hope that this trend will continue to improve in the coming weeks.