Democrats could lose their breathing space on gas prices

Data: AAA; Graphics: Jacques Schrag/Axios

Falling gas prices may be a political relief for President Biden and the Democrats, but there’s no guarantee they won’t rise again before the midterm elections.

Driving the news: The national average is down nearly 60 cents since it surpassed $5 a gallon per AAA in mid-June, though costs remain elevated.

The big picture: Future oil and gas prices are notoriously difficult to play, and wild cards are particularly plentiful at this moment. However, analysts see the possibility of further price increases in the coming months, even if the markets have relaxed somewhat.

Two main risks:

  • Tightening of European sanctions and other efforts Reducing Russia’s windfall from fossil fuel exports — moves that could limit production there.
  • An active hurricane season could create powerful storms that hit the Gulf Coast.

What you say: Energy analyst Bob McNally says the crisis sparked by Russia’s invasion of Ukraine is creating perhaps the greatest risk of a prolonged energy disruption since the 1970s.

  • “To paraphrase Winston Churchill, we are not even at the end of the beginning of this energy war, of this conflict, let alone the beginning of the end,” he said.
  • “I think this is quite unlike any other geopolitical crisis since the late ’70s,” McNally, president of Rapidan Energy Group, said in an interview.

The International Energy Agency this month reported that Russian supplies have remained “resilient” so far, but added:

  • “With an EU embargo on Russian oil coming into full force later this year, the oil market could become tight again.”

Don’t sleep in the weather and neither does climate change. The National Oceanic and Atmospheric Administration forecast for this year’s Atlantic hurricane season may be unusually active.

  • Severe storms hitting the Gulf Coast refinery belt could limit gasoline production and transportation in an already tight fuel market.
  • GasBuddy petroleum analyst Patrick De Haan says without disruption he sees national average gas prices on the way back to less than $4 a gallon.
  • But he adds, “If we see a major hurricane, there could and likely will be profound impacts, especially if it’s a Category 4 or 5 storm, maybe even a Category 3 storm.”
  • “If we see that between New Orleans and Houston I would say all bets are off and certainly there is potential that we’re right back to $5 [per gallon]'” De Haan said in an interview.

The Intrigue: Fed rate hikes are expected to slow the US economy, but the overall global economic picture is mixed, while COVID policy in China – the world’s second largest oil consumer – is also a variable.

  • McNally said the main reason for the fall in oil and gasoline prices was that “the market is pricing in the risk of a recession,” and he also notes that US gasoline demand has been weak and inventories are increasing.
  • “But outside of the US, demand is pretty strong. Especially India, China is coming back,” he said. It’s possible, he adds, that until a few weeks ago traders underestimated the risk of a recession, but now they may be overstating it.
  • De Haan is watching the next quarterly US GDP data next week which is expected to be weak. “If there’s a surprise to the upside – that is, better than expected GDP – that could trigger another one [price] Rally too,” said De Haan.

What we don’t know: The election results of the price increase and the recent decreases.

  • Doug Sosnik, a former political adviser to Bill Clinton, said the impact of falling prices on Democrats could help prevent further trouble, but added, “In the short term, I don’t think you’re going to get much political credit.”

The bottom line: “It’s way too early to conclude that we’ve seen the summit and prices have gone downhill from here,” McNally said.

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