Gasoline prices may be headed for an all-time high

Although gasoline prices have risen to $4 per gallon this summer, they are still at their peak. However, all stakes are off in the event of a hurricane or any other disruption that pushes oil prices higher or reduces fuel supply. According to AAA, Wednesday’s national average for unleaded gasoline was $4.467 per g.

Prices had fallen steadily from a peak of $5.01 on June 14, when they reached a high point of $5.01 in the nation. The Energy Information Administration provides weekly data on gasoline demand. This suggests that drivers are reducing gasoline consumption and that supplies are tightening.

“I spoke with three large chain retailers. All three retailers said that the demand for the past three weeks is down 5% to 6% associated with the same time last year,” stated Tom Kloza, head of global energy research.

He said that the most common price in the nation starts at $3.99 for a ‘3 handle. Big chains charge this price in areas where gas prices are lower. Analysts believe there’s a psychological appeal to gasoline priced below $4.

Prices vary significantly across the U.S. with drivers in Georgia paying $3.98 per gallon while Californians were paying $5.84 for unleaded, according to AAA. Analysts say that although the high price of drivers is evident, there may also be other factors. Kloza stated, “I believe it’s a mixture of Covid and the continued work from home.”

Concerns about a possible recession have kept oil prices down. Kloza warns that gasoline prices could rise to $5 this year due to various factors.

One, Europe is expected not to use Russian oil until the end of this year. Analysts are worried that this could cause upward pressure on crude and fuel prices. Kloza stated that gasoline prices would drop if there were no incidents or issues with refineries due to hurricanes or breakdowns.

“Crude oil stocks have fallen by about 152 million barrels from last year. Oil prices could rise or fall. This is not a “coast is clear” situation, but there will be plenty of people who do.” Consumers have not been hit with rising energy prices since the 1970s, while prices for other goods have increased. Energy inflation was responsible for the 9.1% increase in June’s Consumer Price Index.

“People are being taken advantage of by these higher prices all around,” stated John Kilduff, who is a partner with Again Capital. He stated that discretionary driving was just being considered.

Petroleum prices play a significant role in gasoline prices. Crude oil prices have risen recently. WTI futures fell to 0.7% on Wednesday due to lower gasoline demand. The EIA reported that gasoline demand increased to 8.5 million barrels per week from 8.1 million barrels last week.

The average daily gasoline demand for the past four weeks was 8.7 million barrels per week, compared to 9.3 million barrels one year ago. Kilduff stated that demand at this time would have been greater than 9.5 million barrels per day if it wasn’t for Covid.

Initial analysts questioned the report showing low demand for Independence Day week. They attributed it to difficulties in gathering data during this holiday period. It’s fallen for two weeks straight. Kilduff said that it is beginning to look like a consistent trend. Patrick DeHaan from Gas Buddy is the head of petroleum analysis. He says that gasoline inventories are also recovering.

EIA reports that gasoline inventories increased by 3.5 million barrels to 228.4 million barrels.
DeHaan stated that although gasoline inventories have increased four times in the past five weeks, they are still somewhat tighter than I would like.

He noted that this should reduce RBOB gasoline futures which are the expected price of gasoline in New York Harbour. RBOB futures traded at $3.28 per gallon on Wednesday afternoon. They were 0.7% less than Wednesday afternoon.

He stated that the concern is that a hurricane could hit the Gulf Coast production and the refinery hubs in Texas and Louisiana. Although refineries are still operating at total capacity, utilization has dropped to 93.7% over the last week, a drop of 1.2 percentage points. DeHaan suggested that the lower demand could be an anomaly and speculated that it could be caused when gasoline stations hold off on orders, waiting to see if prices drop further.

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