Gasoline prices may have hit their summer high and could drop below $4
Gasoline prices may have peaked over the summer and are now heading towards $4 a gallon, but all bets are off if there is a hurricane or other disruption that drives oil prices up a lot. higher or compressing the fuel supply.
The national average for unleaded gasoline was $4.467 per gallon on Wednesday, after declining steadily from a national high of $5.01 on June 14, according to AAA. Weekly gasoline demand data from the Energy Information Administration (EIA) suggests drivers have reduced gas mileage and tight supplies are improving.
“I spoke to three major retail chains… They all said demand over the last three weeks was down 5% or 6% from the same weeks last year,” Tom said. Kloza, head of global energy research at OPIS.
“The most common price in the country starts with a 3 handle. $3.99,” he said. That’s the price some big chains charge in areas where gas prices are lower, and analysts say there’s a psychological appeal to gas under $4.
Prices vary widely across the United States, with drivers in Georgia, for example, paying a relatively low price of $3.98 per gallon, while Californians pay $5.84 for a gallon of unleaded, according to AAA.
Clearly, high prices have affected driver demand, but there may also be other factors at work, analysts say.
“I think it’s a combination of Covid and continuing to work from home,” Kloza said. Concerns about a recession also kept oil prices capped. But Kloza warns gasoline prices could rise to $5 later this year based on a number of factors.
On the one hand, Europe is expected to stop using Russian oil by the end of the year, and analysts fear this will put upward pressure on crude and fuel prices.
“If there are no incidents, problems with refineries in terms of outages or hurricanes, then yes,” gasoline prices will go down, Kloza said. “Crude oil inventories are about 152 million barrels behind last year. You might see crude prices take off, or maybe not. I don’t consider that a clear coast, but you will have a lot of people who will.”
Not since the 1970s have consumers been hammered by rising energy prices while the prices of other goods and services have risen sharply. Energy inflation can be explained nearly half of June’s 9.1% rise in the consumer price index.
“With these higher prices across the board, people are being hit left, right and center. Discretionary conduct is just filed for now,” said Again Capital partner John Kilduff.
Oil prices are a big factor in gasoline prices, and crude has rallied recently after West Texas Intermediate crude fell into the low $90s a barrel this month. WTI futures were at $103.45 a barrel on Wednesday afternoon, down about 0.7%, according to the weekly gasoline demand decline report.
According to the EIA, gasoline demand was 8.5 million barrels per day last week, compared to 8.1 million barrels per day the previous week. Meanwhile, the four-week average was 8.7 million barrels per day, down from 9.3 million barrels per day a year ago. Kilduff said pre-Covid demand would have been 9.5 million barrels per day or more at this time of year.
Analysts initially questioned the report showing such weak demand during Independence Day week and attributed it to possible data collection difficulties during the holiday period.
“It’s going down two weeks in a row. It’s starting to look like a reliable trend,” Kilduff said.
Patrick DeHaan, head of oil analysis at Gas Buddy, notes that gasoline stocks have also rebounded. Gasoline inventories rose by 3.5 million barrels last week to a total of 228.4 million barrels, according to the EIA.
“We’re still a little tighter on supply than I would like for hurricane season, but we’ve seen gasoline inventories build up now in four of the last five weeks,” DeHaan said. He said that should drive down RBOB gasoline futures, which represent the expected price of gasoline in New York Harbor.
RBOB futures were down 0.7% on Wednesday afternoon, trading at around $3.28 a gallon.
“I still think it’s a possibility that we get $3.99 nationwide [by mid-August]”, DeHaan said. “It can certainly be derailed by unplanned shutdowns, better-than-expected economic data and hurricanes.”
DeHaan said the concern is that a severe hurricane will hit Gulf Coast production and refining centers in Texas and Louisiana. Refineries operated at full capacity, although utilization fell to 93.7% last week, down 1.2 percentage points.
DeHaan said the drop in demand numbers could be somewhat of an anomaly and he speculated it could be caused by gas stations delaying orders, waiting for even lower prices.
“I think Labor Day might end up being the cheapest summer vacation at the pump,” DeHaan said. “We may have expectations of what shows up in the economic data, but we have no expectations of what happens in the Atlantic or the tropics. The wildcard this year is hurricane season…If we get a Harvey or an Ida that shuts down oil and gas production, we could get back to record highs. We’re not safe.
In late May, JPMorgan predicted gasoline could hit $6.20 a gallon by the end of the summer.