Major milestone: US gas prices drop below $3 a gallon for first time since May 2021

By Matt Egan, CNN

New York (CNN) — The last time gasoline was this cheap, 4% inflation seemed alarming, JD Vance was still a private citizen and the United States had only just begun its messy withdrawal from Afghanistan.

Gas prices dropped below an average of $3 a gallon in the United States on Tuesday for the first time in four-and-a-half years, according to AAA.

The milestone represents a rare feel-good story in a years-long affordability crisis marked by high prices for necessities.

The national average for regular gas dipped to $2.998 a gallon, compared with $3.001 on Monday. Pump prices are down about six cents in just the past week and are below $3 for the first time since May 2021.

Gas is also cheaper than it was last year, albeit modestly. The national average a year ago was $3.05 a gallon. Last month, gas prices were briefly more expensive on a year-over-year basis.

Prices are even lower in many parts of the country.

According to AAA, the average price for gas is below $2.75 a gallon in 18 states, including New Mexico, South Carolina, Wisconsin, Iowa and Colorado.

It’s a far cry from 2022 when Russia’s invasion of Ukraine sent energy prices skyrocketing. At one point, gas prices surged beyond $5 a gallon for the first time ever, prompting the Biden administration to release emergency oil stockpiles.

President Donald Trump has made lower energy prices a central focus of his second term, vowing to keep a lid on prices at the pump by embracing a “drill, baby, drill” agenda of deregulation and support for fossil fuels.

Days into his second term, Trump also used a high-profile speech at Davos to call for Saudi Arabia-led OPEC to ramp up production.

Although Trump’s promises to slash grocery prices have not borne out and electric bills have increased sharply, gas is a bit cheaper than it was at this point last year. The biggest reason: Oil is much cheaper than it was at this point in prior years.

In early December 2022, months after Russia invaded Ukraine, US oil prices were sitting at about $81 a barrel. At this point last year, crude traded at around $70 a barrel. Today a barrel of crude is selling for just $59.

Oil has been driven lower by the fact that supply continues to outpace demand.

US oil production continues to break record highs, although it is only slightly higher than a year ago.

The bigger driver is the fact that OPEC has ramped up production this year, something the producer group refused to do in years past.

As always, oil prices can quickly change course, especially if investors fear a geopolitical conflict will threaten supplies. Trump in recent days has threatened to attack Venezuela, which has more oil reserves than any nation on the planet.

But some on Wall Street are betting oil prices could stay cheap for some time, keeping gas prices low.

If OPEC doesn’t intervene to ease the supply glut, Brent crude oil – the international benchmark – will likely drop into the low $50s per barrel by the fourth quarter of next year and close 2026 in the $40s, JPMorgan Chase analysts wrote in a recent report.

JPMorgan said the “outlook worsens” in 2027, with a mounting surplus driving Brent to an average of just $42 a barrel and sinking into the $30s by the end of that year.

This is a developing story and will be updated.

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