Tammy Wolfe pulled up to a gas station in Dubuque to fill up her tank and glanced at the price.
It was the first good news she has seen in weeks: $1.84 per gallon.
“It’s kind of a bright spot in all of this,” Wolfe said. “I haven’t seen the price of gas this low in a while.”
Throughout the tri-state area, gas prices have steadily declined in recent weeks. Many gas stations are selling fuel well below $2 per gallon.
Linda Hoffmann, manager at Conoco gas station in Cascade, Iowa, has worked in the shop for decades. She has never seen prices drop the way they have in the past few weeks.
“I can’t remember the last time prices were this low,” Hoffmann said. “The last time they dropped like this was 9/11.”
The steep decline is the result of an international dispute causing an excess supply combined with the outbreak of COVID-19 that has drastically reduced demand, according to Dave Swenson, an Iowa State University economics professor.
Even before the pandemic shuttered schools and businesses across the planet, prices already had begun to drop as Russia and Saudi Arabia became engaged in an “oil price war.” Russia initially refused to comply with requests from the Organization of the Petroleum Exporting Countries, or OPEC, to decrease oil production to prevent excessive supply.
Following Russia’s actions, Saudi Arabia retaliated by lowering the price of its oil and increasing production.
“They are flooding the market with oil,” Swenson said. “The intention is to drive out marginal producers.”
But the rapid spread of COVID-19 and the accompanying quarantine of people worldwide only exacerbated the problem. People are driving far fewer miles than they used to, and a general decline in the sale of goods is reducing freight traffic between manufacturers and warehouses.
“We are seeing a sharp decline in demand because of coronavirus,” Swenson said. “The only way to cover that drop in demand is to lower prices.”
Hoffmann said she is seeing a fraction of the traffic she normally observes.
“Today, I had my first out-of-town traveler all week,” Hoffmann said late last week. “It’s been really slow.”
Biniv Maskay, associate professor of economics at Loras College, said the uncertainty over the duration of the COVID-19 crisis makes it challenging to assess when gas prices will rise again.
However, companies are selling petroleum products at unsustainable prices, he said, which could lead to smaller companies folding. If that occurs, the supply could be reduced, bringing prices back up.
“It’s hard to know when exactly that bounce back will be,” Maskay said. “Many members of OPEC cannot sustain at that low price level. That may cause that supply to go down.”