Gasoline prices in the US have fallen for 24 straight days after hitting a record last month. But analysts said prices could rise again if driver demand increases and supply is curtailed.
The average cost of a gallon of unleaded gas on Friday was $4.72. That’s down about 6% since prices peaked at $5.02 on June 14, according to data from OPIS, a provider of energy data and analytics.
The decline is mainly due to lower demand at the pump, according to an AAA report released this week. Increased gas supply and lower oil prices have also contributed to the recent price drop, the AAA said. Crude oil futures were about $102 a barrel as of Thursday night, down about 16% over the past month.
Pre-Independence Day gasoline sales lagged behind previous years. Same-store gasoline demand for the week ended July 2 fell about 7% from the same period last year, according to OPIS data. Demand fell about 13% this week compared to the same period in 2019. Gasoline demand fell to its lowest level in nearly a decade in mid-to-late May, according to government data.
Gas prices could fall further if trends continue, the AAA report said. “However, July is typically the busiest month for demand as more Americans take to the streets, so this price-cutting trend may be short-lived,” AAA spokesman Andrew Gross said in a statement.
Tayannah Schonenberg, a 26-year-old chef, said she doesn’t alter her gas usage and instead works more hours.
Photo: Lauryn Azu/The Wall Street Journal
Some Americans are changing their driving habits as the cost of gasoline and many goods and services has increased.
Marc Pellegrino said he would not be doing the cross-country tour that he and his family have been on for the last two years today because of the pressure at the pump.
“It was actually a happy time putting together a little road trip,” said the New Yorker. “We couldn’t do that now.”
Tom Kloza, global head of energy analysis at OPIS, said he expects demand to pick up later this month, helped by lower petrol prices and recent disruptions to domestic air travel. OPIS is part of Dow Jones & Co., which publishes The Wall Street Journal.
Tayannah Schonenberg, a 26-year-old chef from Easton, Pennsylvania, went on vacation to New York City this week. Above-average prices would not have deterred her from the trip, she said. She works more hours to cover expenses, including trips with higher gas prices.
“It doesn’t really help because gas is still high,” Ms. Schonenberg said.
Mr Kloza said consumers should not expect the respite to be long-lasting. Increased demand could help push prices higher again, he said.
The Big Hill Strategic Petroleum Reserve deposit in Texas.
Photo: US Department of Energy/Handout/EPA-EFE/Shutterstock
“There are more upside risks than downside risks,” Mr Kloza said. “Next month it will be about the supply and whether the supply is compromised.”
Summer hurricanes and power outages taking refineries around the Gulf of Mexico offline could reduce already tight supplies, Mr Kloza said. Disruptions as a result of the Russia-Ukraine conflict could also jeopardize supplies. And if the Organization of Petroleum Exporting Countries refuses to increase production, it could send oil and gas prices higher later this year, Mr Kloza said.
Gas prices are most likely to fall further if a recession hits, which would undermine expectations of demand growth, said Bart Melek, head of commodity strategy at TD Securities.
According to studies by an economist at the US Federal Reserve, the US economy faces increased risks of a recession in the next one to two years. The Fed has been aggressively raising interest rates, increasing the risk of a recession, to avoid higher inflation taking hold of the economy, Federal Reserve Chair Jerome Powell said.
The Biden administration has been tapping oil supplies from the US Strategic Petroleum Reserve and is trying to pressure the US oil industry to increase production. But with existing refineries nearing capacity, little can be done in the near term to plug the supply gap, analysts said.
Several state and federal authorities have taken action to curb the rise in prices. Some states have suspended their gas taxes. The US Environmental Protection Agency issued an emergency waiver in April that will allow gas stations to sell high-ethanol gasoline this summer despite concerns about rising air pollutant emissions.
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President Biden, in a tweet over Independence Day weekend, pressured companies that set gas prices to “lower the price you charge at the pump to reflect the cost you pay for the product.”
Mr Kloza said it can be an effective executive approach to inducing companies to price lower, particularly when margins are high.
The weekly retail margin for gas, the retail price subtracted from net costs, was about 55 cents a gallon for the week ended July 2, according to OPIS data, compared to 28 cents for the same period last year.
“This has been an immensely profitable year for oil and gas producers and refiners,” said Mr. Kloza.
Write to Omar Abdel-Baqui at [email protected] and Lauryn Azu at [email protected]
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