HOUSTON — Gasoline prices, which had soared in recent months, reversed course in July, giving consumers a welcome break.
Gasoline was the main reason U.S. consumer prices were 9.1 percent higher in June from a year earlier, the biggest annual increase in four decades. But now gas prices have fallen for 28 straight days, the longest decline since the collapse of energy demand in early 2020, when the Covid-19 pandemic paralyzed the economy. Energy analysts say American consumers are spending $140 million less on gasoline per day than they did a month ago.
The trend could easily reverse, especially if a hurricane knocks out a Gulf Coast refinery, as global oil supplies remain quite tight. But for now, national stocks are slowly growing, partly due to the government’s continued release of oil from its strategic oil reserves and reduced consumption.
The national average price for a gallon of regular gasoline on Wednesday was $4.63, down more than 2 cents from Tuesday, according to the AAA auto club. Prices are down 15 cents in the past week and 38 cents since four weeks ago, when the average price climbed to just over $5 a gallon.
The decline was particularly sharp in Texas, Ohio, Illinois and California, all economically important states where prices fell 16 cents or more in the past week.
President Biden was quick to announce the reduction in gas prices because rising gas prices are a political danger to him.
“In the last 30 days, the average price of gas has dropped 40 cents a gallon,” he said on Twitter. “It’s a breath of fresh air for American families.” Noting that oil prices have fallen faster than fuel prices, he urged oil companies to pass the savings on to consumers.
Gasoline prices are especially important to lower-income families, who tend to drive longer distances to work and own older, less efficient vehicles. But pump prices also shape consumers’ perceptions of inflation more broadly because they see the ups and downs on street corners every day.
Drivers are starting to notice the difference and like what they see.
“There’s always the fear that prices are going to go up, but they’re never going to go down,” said Melanie Wilson-Lawson, a professor of health sciences, as she filled her tank at a gas station outside Houston. “But now I see a significant difference. It’s huge.” It helps ease her financial insecurity, which has led her to cut back on dining out in recent weeks.
Ms. Wilson-Lawson said she hoped Mr. Biden’s discussions on his current trip to the Middle East would prompt oil producers to increase supplies and lower prices. But how much more Saudi Arabia and other Middle Eastern nations could produce, even if they wanted to, is questionable. Production in several countries, notably Libya, has been hampered by political upheaval.
Fuel affects the prices of all goods that are shipped, especially food. Profits for farmers, construction companies and airlines depend heavily on fuel costs, especially diesel and jet fuel, which are falling, but at a slower pace than gasoline. The national average diesel price, at $5.61 a gallon, is 16 cents lower than it was a month ago.
The 3 percent drop in diesel compares with 7 percent in gasoline. Wholesale jet fuel prices, which do not include taxes like other fuels, have fallen roughly 11 percent in the past month. A major reason for the slower decline in domestic diesel prices is a large increase in exports to Europe to offset reduced supplies from Russia following its invasion of Ukraine in February. Imports have shrunk to a trickle as the global diesel market tightened.
The drop in pump prices followed a slide in global oil prices, which have fallen over the past month amid growing signs that the global economy is slowing.
Fears that tightening Western sanctions against Russia would drastically reduce global oil supplies have been overblown after Moscow was able to replace European markets with sales in China, India and South America. Meanwhile, expectations that the economy of China, the largest importer of crude oil, would revive have also fallen short due to lockdowns of key cities in response to continued Covid-19 surges.
Patrick DeHaan, head of oil analysis at GasBuddy, a Boston-based company that tracks fuel prices, said the trend of lower gasoline prices could continue for a fifth week as oil prices – which fell below $100 a barrel – do not go above $105.
“We’re not completely out of the woods yet,” Mr. De Haan said. “There remains the risk of a price spike that could send us to new record highs in August if disruptions occur. It could be a wild ride, but for now the pump drop will continue.
Gasoline price fluctuations typically follow oil prices by about a week because oil must be processed and refined before it reaches gas stations, which base their retail prices on the wholesale price.
Oil prices have been particularly volatile recently. They fell more than 7% on Tuesday and were slightly higher on Wednesday. The price of Brent crude, the international benchmark, fell from a peak of nearly $140 a barrel shortly after the invasion of Ukraine, while the US benchmark, West Texas Intermediate, peaked above $130. Both were under $80 at the start of the year.
A report by ESAI Energy, an analyst firm, said on Wednesday that the company expects a global surplus of four million barrels per day in a market of roughly 100 million barrels per day in the second quarter. “This is a significant drop in demand,” said Sarah Emerson, president of ESAI.
Besides demand, the surplus reflects the release of strategic reserves by several countries, including the United States. These releases will eventually end and reserves will need to be replenished in the future, adding a new source of demand as early as next year. A recovery in Chinese demand is likely to happen sooner rather than later, although Chinese reserves are currently high.
Oil production is increasing in the United States — although it remains below pre-pandemic levels — as well as in Guyana, Brazil and several other countries. Oil companies are wary of drilling too fast, in part because they fear a sudden drop in prices.
Many energy experts believe the price breakout is temporary.
“It’s a nice little reprieve in the middle of the summer, based on more supply and less demand,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service. “But I very, very much don’t want to say we’re not going to see $5 gas anymore.” A hurricane would be the mother of all wrenches for this more moderate market.”
But for now, Mr. Kloza said, the high prices of recent months appear to have affected driving decisions.
An Energy Department report released Wednesday showed that gasoline demand in recent weeks has fallen by 1.35 million barrels per day, or more than 10 percent. Gasoline inventories rose 5.8 percent last week after falling 2.5 million barrels the previous week. This suggests that prices should continue to fall in the coming days.
“Gasoline inventories are falling rapidly as demand remains very weak,” according to a Citigroup report released Wednesday, which also noted a rebound in diesel and jet fuel inventories. “This is against a global backdrop full of uncertainty – geopolitics, weather, pandemic sub-variants, recession – which points to a volatile summer, but ultimately we think energy prices will go down.”
Prices of other economically sensitive commodities, such as copper, have also fallen in recent weeks.
But with a gallon of gas still about $1.50 higher than a year ago, not everyone feels better at the gas station.
“Honestly, I haven’t noticed,” said Doug Johnson, a sales manager for a pipeline services company, loading his pickup outside Houston on Tuesday. “You’re talking cents, I’m talking dollars. We made a conscious decision not to go on holiday this summer.”
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