Although petrol In a multi-week downtrend, prices have fallen below $4.50 a gallon on average nationwide. An industry expert warns the reprieve is likely to be temporary and that drivers should brace for pump pains as oil is set to recover in a “second act”.
The national average gasoline price fell to $4.47 a gallon on July 20, according to AAAas lower global oil prices combine with a decline in US domestic gasoline demand.
“Global economic headwinds are pushing oil prices lower and less expensive oil is leading to lower pump prices,” AAA spokesman Andrew Gross said in a statement. “And here at home people are filling up less even though this is the peak of the traditional summer driving season. These two key factors are behind the recent drop in pump prices.”
If these supply-demand dynamics continue, AAA forecasts further price relief at the pump.
But an industry expert says drivers should brace themselves for gas prices to reverse their falling trend as oil prices usher in a possible recovery.
“A tragicomedy in the making”
Tom Kloza, Founder of oil The Price Information Service (OPIS) said in a statement that although retail gasoline prices have fallen below the $4.50 mark, it expects “this respite could be a prelude to the second act of the oil – a tragic comedy in the making.” “.
To support his hypothesis, Kloza noted that wholesale gasoline prices have risen about 10 cents a gallon over the past week.
Wholesale gasoline futures hit a three-month low of around $3.19 a gallon on July 14 and rose steadily to $3.28 by July 19. corresponding TradingView data.
Kloza previously warned in a post on twitter that the wholesale markets for gasoline and diesel as well as crude oil were looking for a “launch pad” to take off in the second half of 2022.
Crude oil prices started the week in rally mode, with West Texas Intermediate rising more than 5 percent from about $99 a barrel on July 18 to about $104 on July 19, before reversing those gains and trading late on the 20th. July traded again at around $99.
The international Brent crude oil benchmark followed a similar trajectory earlier in the week, except that it remained around $106 a barrel on July 20, up from around $103 three days ago.
Kloza said in an OPIS webinar on July 12 that he expects significant price volatility for gasoline and diesel in the future.
“This is a small interlude on a stormy, stormy road for the rest of this year and well into 2023,” he said.
According to Kloza, low stocks of diesel in particular mean more price uncertainty in the future.
“Watch diesel prices over the next six months. They could absolutely go parabolic in a repeat of what we saw in March and April,” Kloza said.
Diesel plays an important role in powering the world economy as it is used to transport almost everything that is grown, processed or manufactured.
Jared Bernstein, a member of the White House Economic Advisory Council, told CNN in a recent interview that he expects gasoline prices to fall further into July, but warned that the picture is blurry beyond that.
“Nobody can reliably see around the corner when it comes to these prices falling a few more quarters,” Bernstein said July 17 on CNN’s State of the Union program.
‘Stratospheric’ crude at $380 a barrel?
Fears that gasoline and diesel prices could spike again are linked to efforts to further tighten sanctions on Russia in response to its invasion of Ukraine.
The United States and its G-7 allies have proposed a price cap on Russian oil to curb money flows to Moscow.
But JPMorgan has warned that Russia could retaliate by cutting oil production to create a shortage in the market and thereby prop up prices.
According to Bloomberg, analysts at the investment bank predicted in early July that a 3 million barrel cut in daily supply by Russia could push Brent crude to $190 a barrel.
A worst-case scenario of a 5 million barrel cut could mean “stratospheric” crude oil prices of $380 a barrel, according to analysts.
Gal Luft, co-director of the Institute for the Analysis of Global Security, told CNBC in a last job interview that the proposed price cap on Russian oil is a “ridiculous idea” that could backfire.
“The Europeans and Americans who are talking $40 a barrel are going to get $140 a barrel,” Luft said, while making the same argument as JPMorgan analysts that Russia could cut production in retaliation.