Gasoline futures fell more than 10 percent on Tuesday and are down more than 22 percent since June, raising hopes that high gas prices across the country may soon fall.
The price of US crude fell more than 8 percent and international benchmark Brent crude fell almost 10 percent on Tuesday.
“We’re on the verge of further savings,” said Patrick De Haan, head of petroleum analysis at gas price tracking site GasBuddy. “I’m trying to be a little optimistic here that this relief could find its way all the way to the pump in the coming weeks.”
The national average for a gallon of gasoline is now $4.78 per gallon, according to the AAA, down from a recent high of over $5 a gallon. A year ago, the national average was just $3.13, a 50 percent year-over-year increase in gas prices.
And any drop in gas prices could also give the Biden administration some political breathing space, because while presidents have little control over gas prices, they are still blamed by voters and their political enemies.
US crude oil was hovering around $98 a barrel on Wednesday afternoon, up from around $108 late last week. Brent crude fell to around $101 a barrel from around $111 late last week.
Earlier Wednesday, Brent prices briefly fell below $100, the first time prices for the commodity had been below $100 since April.
Experts believe that this trend will lead to drips at the pump.
Marianne Kah, an associate senior research scientist at Columbia University’s Center on Global Energy Policy, said she expects the current drop in crude oil prices to translate into a about 12 percent drop in gasoline prices — or about 60 cents — from their peak will lead in the last month .
“We’re talking about 60 cents a gallon,” said Kah, who is also a former chief economist at oil company ConocoPhillips. “Now of course it takes time for the price of crude oil to flow through to the price of gasoline.”
Meanwhile, De Haan said he believes consumers could see another drop ranging from an additional 40 cents to an additional 65 cents in the coming weeks if things otherwise remain the same.
“The average price per gallon could fall by 40 to 65 cents in the coming weeks,” he said, adding that the decline could span a period of three to six weeks.
“Stations are already getting lower prices,” he added. “Prices could go down a cent or two every day or two for the next six weeks, as long as nothing changes.”
Experts say the drop is a double-edged sword, as the cheaper price isn’t due to any real changes on the supply side, but rather consumer spending restraint and demand expectations dragging down.
“I think gas prices are going to go down,” said Phil Flynn, an energy markets analyst at PRICE Futures Group, in an interview with The Hill.
“We’re starting to see consumers paying $4.80 a gallon instead of $5 a gallon — and that’s not great — but it’s also because they don’t have that much money in their pockets, and you’re leaving.” not for dinner and eating out, so what we’re seeing is a drop in demand. And that’s because people are feeling the pain of higher prices.”
But Kah said there are still factors that could push up energy prices in the coming months, including if Russia cuts its oil production or if China’s demand grows.
Meanwhile, this week the big banks released very mixed views on the future of oil prices.
JPMorgan predicted that in the “worst-case scenario” prices could soar to as high as $380 a barrel if Russia cuts production.
Citibank predicted that in the event of a recession, oil prices could fall to $65 a barrel this year and $45 a barrel next year.
“It just underscores the volatility and even the difference in thinking,” De Haan said. “We just don’t know how things are going to play out. We still have an active hurricane season. Despite fears of a recession, the economy is doing well. The labor market is still very strong.”
However, analysts agree that the current price declines are largely due to recession fears.
“It’s because of all the rate hikes,” Kah said. “We saw that [with] big rate hikes are followed by a recession with a historical lag, increasing expectations of a recession.”
The slowdown in economic activity means the likelihood of a recession next year is increasing. An economic model from Bloomberg now puts the probability of a recession in 2023 at 38 percent, the company tweeted on Wednesday.
Experts say this fall in crude oil prices is also being caused by lower energy demand expectations from consumers and businesses as they adjust to high inflation.
Signs that inflation may have peaked and that prices may soon fall across a number of sectors and categories are beginning to mount, with commodity prices in particular taking a hit in recent days.
Deutsche Bank analyst Jim Reid wrote in a note to investors on Wednesday that a “rolling 20-day move in [Deutsche Bank’s] The commodity index is now posting its third-biggest decline in 90 years.”
“Traditional industrial beacon copper was another casualty of this trend, plummeting another -5.36 percent to its own 19-month low yesterday, while wheat futures (-4.61 percent) are now below their pre-invasion levels Russia trades Ukraine,” Reid wrote along with analysts Henry Allen and Tim Wessel.
In the consumer staples sector, many large outlets like Walmart, Target and Bed Bath & Beyond are struggling with excess inventory that could force further markdowns and liquidations. Metrics comparing inventories to sales show that while lower prices are on the horizon for consumers, the tight supply chains that are driving inflation are still out of whack.
Excess inventories were also reported for the semiconductor industry in South Korea. Computer chips manufactured by Samsung are used in a variety of industries. Therefore, liquidation in this sector could lead to outcomes such as more cars on dealer lots and more graphics cards for the gaming industry.
“We’re seeing high prices heal high prices,” said Flynn of PRICE Futures Group.
“But I think we’re in a super cycle here for a long time,” he added. “I think we have a decade of higher prices ahead of us. We will see some peaks and valleys along the way and just because we have a correction at the moment I don’t think that’s over yet.”