ADVERTISEMENT

ADVERTISEMENT

Business

Gasoline prices may have reached a summer peak and could fall below $4.

ADVERTISEMENT

Written by admin

ADVERTISEMENT

ADVERTISEMENT

Gasoline prices may have peaked in the summer and are now approaching $4 a gallon, but all bets are off if there is a hurricane or other natural disaster that pushes oil prices much higher or cuts fuel supplies.

On Wednesday, the national average for unleaded gasoline was $4.467 a gallon; Prices have steadily declined from a high of $5.01 on June 14, according to AAA. Weekly gasoline demand data from the Energy Information Administration, or EIA, shows drivers have reduced their gasoline consumption and supply problems are improving.

“I spoke to three large chain retailers… They all said that demand over the past three weeks has fallen by 5% or 6% compared to the same weeks last year,” said Tom Kloza, head of global energy research at OPIS.

“The most common price in the country starts at the 3 handle at $3.99,” he said. That’s the price some major chains charge in areas with lower gas prices, and analysts say there’s a psychological craving for sub-$4 gas.

US prices vary widely, with drivers in Georgia, for example, paying a relatively low $3.98 per gallon, while Californians pay $5.84 for unleaded gasoline, according to the AAA.

Clearly, high prices have hit driver demand, but analysts say other factors may be at work.

“I think it’s a combination of Covid and continuing to work from home,” Kloza said. Recession fears also held back oil prices. But Kloza warns that gasoline prices could rise back up to $5 later this year due to a number of factors.

First, Europe is expected to phase out Russian oil by the end of the year, and analysts are concerned that this could put upward pressure on both oil and fuel prices.

“If there are no incidents, problems with refineries in terms of breakdowns or hurricanes, then yes,” gasoline prices will go down, Kloza said. “Crude oil inventories are about 152 million barrels behind last year. You may or may not see crude oil prices skyrocket. I don’t think it’s all right, but you will find many people who think so.”

Since the 1970s, consumers have not been hit by rising energy prices, while the prices of other goods and services have skyrocketed. Energy inflation accounted for nearly half of the June 9.1% rise in the consumer price index.

“With these higher prices across the board, people are suffering left, right and center. Discretionary driving has just been brought up for discussion,” said John Kilduff, partner at Again Capital.

Oil prices are a major driver of gasoline prices, and oil has been creeping up again recently after West Texas Intermediate fell to $90 a barrel this month. WTI futures traded at $103.45 a barrel on Wednesday afternoon, down about 0.7% amid a weekly report of lower gasoline demand.

Gasoline demand was 8.5 million bpd last week, up from 8.1 million bpd a week earlier, according to the EIA. Meanwhile, the four-week average was 8.7 million barrels per day, up from 9.3 million barrels a year earlier. Kilduff said pre-Covid demand at this time of year was 9.5 million barrels a day or more.

Analysts initially questioned the report showing such low demand during the Independence Day week and attributed it to possible difficulties with data collection over the holiday period.

“They are falling for two weeks in a row. It’s starting to look like a solid trend,” Kilduff said.

Patrick DeHaan, head of oil analysis at Gas Buddy, notes that gasoline inventories are also recovering. Gasoline inventories rose 3.5 million barrels last week to 228.4 million barrels, according to the EIA.

“We’re still a little short of supplies than I’d like ahead of the hurricane season, but we’re seeing gasoline inventories go up four of the last five weeks,” DeHaan said. He said that should push down RBOB gasoline futures, which represent the expected price of gasoline in New York Harbor.

RBOB futures fell 0.7% on Wednesday afternoon to trade at around $3.28 a gallon.

“I still think there is a possibility that we will get to $3.99 nationally. [by mid-August]DeHaan said. “It can certainly go out of business due to unexpected shutdowns, better-than-expected economic data and hurricanes.”

DeHaan said the concern is that a major hurricane will hit production on the Gulf Coast and refineries in Texas and Louisiana. Refineries are operating at high productivity, although utilization fell to 93.7% last week, down 1.2 percentage points.

DeHaan said the lower demand could be an anomaly of sorts, and he suggested it could be because gas stations are delaying orders in anticipation of even lower prices.

“I think Labor Day could be the cheapest gas station summer vacation ever,” DeHaan said. “We may have expectations about what will show up in the economic data, but we don’t have expectations about what will happen in the Atlantic or the tropics. The wild card this year is hurricane season… If we get a Harvey or Ida to shut down with oil and gas cuts, we could be back at record levels. We’re not safe.”

At the end of May, JPMorgan forecast that gasoline prices could rise to $6.20 a gallon by the end of the summer.

#Gasoline #prices #reached #summer #peak #fall

ADVERTISEMENT

ADVERTISEMENT

About the author

admin

Leave a Comment