In the United States, gasoline unexpectedly fell in price: it’s too early for Americans to rejoice

Fueling up in the US is as cheap now as it was in February, just before the conflict in Ukraine sparked a global energy crisis, according to The Washington Post.

According to the American Automobile Association (AAA), a gallon (1 gallon = 3.78 liters) of regular gasoline now costs $3.47 nationally. This is below the average of $3.54 on February 24, the day Russia launched its special operation in Ukraine. The national average is down $1.55 since hitting a record high of $5.02 a gallon in June. Looking ahead, some forecasters believe that fuel prices continue to fall, although uncertainty remains about where oil prices will go due to questions about OPEC policy and quarantine measures in China.

And gas price watcher GasBuddy predicts fuel prices could drop below $3 by Christmas. And that drop in gas prices likely helped boost Thanksgiving weekend shopping.

“People are realizing that they can go back to spending $50 to fill up a tank instead of $80,” said Emma Rasiel, professor of economics at Duke University. – This is the main signal that consumers notice about inflation. It’s the only thing they’re likely to keep track of how much it’s up or down because every week they have to fill up their car.”

But Professor Rasiel warned that less expensive gasoline could also give consumers the wrong idea. The prices of other goods and services are much less volatile, and there is no sign that this moment of more affordable fuel is driving down the cost of other things.

Even though the drop in gas station prices is helping to ignite holiday shopping in the US, it is a reflection of the financial stress faced by consumers and businesses around the world. Prices are falling as demand for oil and gas falls as countries brace for recession, coronavirus outbreaks in China threaten major financial shocks, and drivers cut back on gas in an attempt to save money to cover skyrocketing mortgage payments and stock market losses.

Previous fears that sanctions on Russian oil would cause a shortage of supply and raise prices by the end of the year, at least for now, have given way to a weakening economy and volatility in financial markets, writes The Washington Post.

“We are heading towards a severe recession in Europe and a further slowdown in US economic growth as people grapple with high interest rates and worry about their personal wealth and savings,” said Ben Cahill, an energy security analyst at the Center for Strategic and International Studies. “Add it all up and you get a grim picture of oil demand. Prices reflect this.”

Helping to keep prices low for now is some key US refineries that have returned to gasoline production after months of downtime for maintenance and repairs.

But no less important factor was the unrest in China. As Chinese leaders signal the imminence of more coronavirus restrictions, sparking protests across the country, the expected economic fallout has oil traders betting short.

China alone accounted for 16% of global oil demand last year, according to research firm Capital Economics, with oil purchases projected to drop by 1 million barrels a day in December due to the spread of the coronavirus. The effect of such a drop on world oil markets is significant: the price of Brent crude falls by as much as $10 a barrel, or more than 10 percent.
“With the number of COVID-19 cases in China at record levels and the threat of massive lockdowns rising, the key question is how much demand can fall, freeing up supply for the rest of the world,” said Edward Gardner, commodities economist at Capital. economics.
While the high cost of gasoline for much of the past year has been a major factor in the crushing inflation that has hit the United States and other countries, falling fuel prices have done little to stabilize the economy. Analysts say manufacturers that rely on large amounts of fuel should see sustained low prices for several months before they adjust the cost of what they sell. And drivers in some parts of the country benefit significantly more than others. Californians still pay almost $5 per gallon of regular gasoline on average.
“This is a rather delicately planned price cut,” said Patrick De Haan, head of oil analysis at GasBuddy, noting that any combination of geopolitical or economic events could lead prices to recover.
There are other important factors that make the price outlook bleak. The US and Europe are negotiating a cap on Russian oil prices that will come into effect on Monday. The plan is to allow Russian oil to continue to enter world markets, but with a price ceiling set.
As The Washington Post emphasizes in this regard, such a price ceiling has never been set for a major oil-producing country, and this threatens to cause further instability. If the limit is set at the very low level advocated by some European countries, Moscow could retaliate by cutting off supplies, pushing up prices worldwide.
Another wild card is the consortium of oil-producing countries OPEC+, which will meet next week to discuss how much oil its members should continue to supply in the coming months. The cartel may decide to cut production in order to raise prices.
“The OPEC meeting could be a skunk on a picnic,” notes Andrew Gross, AAA spokesman. “Trying to guess what they are going to do is difficult.”
It’s things like this that worries John Katsimatidis, who owns hundreds of gas stations and an oil refinery, but not because they could affect his fuel business. When a businessman talks about gas prices, he’s more focused on what they could ultimately mean for another business in his multi-billion dollar real estate development empire.
The rising cost of borrowing has made this venture much more difficult. A six-month $3 cut in gasoline could help lower inflation and signal that the Federal Reserve can safely ease its recent rate hike, he said.
“If we cut the price and it stays there, we can solve the inflation problem and the Fed can stop raising interest rates and putting everyone out of business,” Katsimatidis said.
One thing is clear: there is little that leaders in Washington can do to lower gasoline prices. They are at the mercy of world markets, states The Washington Post.
The Biden administration is likely trying to pressure Saudi Arabia, which dominates OPEC+, not to cut production. But the administration’s lack of influence on such things was made clear at the last OPEC+ meeting in October, when the group rejected Washington’s demand for more output, instead cutting it by 2 million barrels a day.
Last week, the US administration eased sanctions on Venezuela as part of an attempt to resume oil supplies from that country. But it will be many months before the Venezuelan oil is shipped, and only small amounts will be available at first.
Most US drivers pay little attention to the broader dynamics of the global oil market. But even they are taking a cautious approach. Data compiled by the American Automobile Association shows they are sticking to the environmentally friendly driving habits that were adopted when gas soared above $5 a gallon, combining more to-dos with single-car travel, driving at lower speeds, only partially filling their gas tanks.
And the University of Michigan Consumer Sentiment Index suggests this patch of cheaper gasoline is being overshadowed by other financial concerns troubling Americans. The national survey shows that despite the fall in fuel prices, consumer anxiety increased in November.
“Even though gasoline prices have come down, the prices of other commodities are still high,” said Joan Xu, who runs consumer surveys at the university. “A feeling of great uncertainty.”