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US on the ‘sensitive’ side of falling gas prices

Gasoline futures fell more than 10 percent on Tuesday and are down more than 22 percent since June, raising hopes that higher gas prices across the country could soon fall.

US crude oil prices fell more than 8 percent and international benchmark Brent crude fell nearly 10 percent on Tuesday.

“We’re on the cusp of seeing more savings,” said Patrick de Haan, head of petroleum analysis at gas tracking site GasBuddy. “I’m trying to be a little optimistic here that this solution will make its way all the way to the pump in the coming weeks.”

The national average for a gallon of gasoline is now $4.78, according to AAA, down from a recent peak of more than $5 per gallon. A year ago, the national average was just $3.13, representing a 50 percent year-over-year spike in gas prices.

And any drop in gasoline prices could give the Biden administration some political respite, because even though the president has little control over gasoline prices, he faces blame from voters and his political foes.

U.S. crude oil prices were at $98 per barrel on Wednesday afternoon, down from around $108 late last week. Brent crude fell to around $101 per barrel, down from around $111 late last week.

Earlier Wednesday, Brent prices briefly dipped below $100, the first time since April that prices for the commodity fell below $100.

Experts said they expect this trend to cause a drop at the pump.

Marianne Kah, associate senior research scholar at Columbia University’s Center for Global Energy Policy, said she expects the current decline in crude oil prices to translate into a drop in gasoline prices of about 12 percent, or about 60 cents, from last month’s peak. .

“We’re talking about 60 cents a gallon,” said Kah, who is also the former chief economist at oil company ConocoPhillips. “Now, it takes time for gasoline prices to have a crude price flow.”

Meanwhile, de Haan said he expects consumers to see another drop of an additional 40 cents to an additional 65 cents in the coming weeks if the situation remains the same.

“The average price may drop 40 to 65 cents per gallon in the coming weeks,” he said, adding that the drop could be over a period of three to six weeks.

“Stations are already getting lower prices,” he said. “Prices could drop a penny or two every day if nothing changes for the next six weeks.”

Experts say the downturn is a double-edged sword, as cheaper prices are not due to any real changes on the supply side but due to consumers pulling back their spending and demand expectations pulling back.

“I think you’ll see gas prices come down,” Phil Flynn, energy markets analyst at PRICE Futures Group, said in an interview with The Hill.

“We’re starting to see from consumers, instead of paying $5 a gallon, they’re paying $4.80 a gallon — and that’s not great — but it’s because they don’t have as much money in their pockets, and they’re not going out to dine out, so what we’re seeing is a pullback in demand. And because people are feeling the pain of higher prices. .”

But Kah said there are factors that could push fuel prices higher in the coming months, including if Russia cuts its oil output or if Chinese demand picks up.

Meanwhile, major banks are out this week with different views on the future of oil prices.

JP Morgan predicted that prices could rise as high as $380 a barrel in the “most extreme scenario” if Russia cuts its output.

If Citibank faces a recession, oil prices could drop to $65 per barrel this year and $45 per barrel next year.

“It just shows the volatility and also the difference in thinking,” de Haan said. “We don’t know how things will play out. We still have an active hurricane season. The economy isn’t too bad, even with fears of a recession. The job market is still strong.

But analysts agree that the current price declines are largely due to fears of a recession.

“It’s all because of interest rate hikes,” Kah said. “We saw that [with] The bigger interest rate increases, the longer recessions historically follow, so expectations about a recession are higher.

Reduced economic activity means an increased likelihood of a recession in the next year. Bloomberg’s economic model now puts the odds of a recession at 38 percent in 2023, according to a Wednesday tweet from the company.

Experts say the fall in crude oil prices is due to lower expectations of energy needs by consumers and businesses, adjusted for higher inflation.

Signs are starting to pile up that inflation may have peaked and prices may soon start falling across various sectors and categories, with commodity prices in particular taking a hit in the past few days.

“The rolling 20-day move [Deutsche Bank’s] The commodity index is now looking at its third biggest decline in 90 years.

“Copper, the traditional industrial bellwether, was another victim of the trend, falling another -5.36 percent to its own 19-month low yesterday, while wheat futures (-4.61 percent) are now trading below their levels before Russia’s invasion of Ukraine,” Reed analysts Henry Allen and Written with Tim Wessel.

In the consumer goods sector, several big box outlets such as Walmart, Target and Bed Bath & Beyond are dealing with excess inventory that is forcing constant markdowns and liquidations. Metrics comparing inventories to sales show that while lower prices are on the horizon for consumers, josled supply chains fueling inflation are still far from whack.

Stockpiles were also reported for the semiconductor industry in South Korea. Computer chips produced by Samsung are used in a wide range of industries. Therefore, liquidation in that sector could lead to results such as more cars in dealer lots and more graphics cards available for the gaming industry.

“We’re seeing higher prices cure higher prices,” said Price Futures Group’s Flynn.

“But I think we’re in a super-cycle here for a long time,” he said. “I think we’re in for a decade of higher prices. We’re going to see some peaks and valleys along the way, and because we’ve had a correction at this point, I think it’s not over yet.”

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