American consumers can breathe easier as gasoline prices have started to fall, after earlier hitting record levels. But prices at the gas pumps are still high and the two-month price drop may be coming to an end.
The national average price for a gallon of gasoline (3.78 liters) fell to $3.99 on Thursday, the American Automobile Association said. This figure represents a 20 percent drop compared to June, and for the first time since March, the average price of gasoline has fallen below $4.
Gasoline prices usually go up and down and oil and crude oil prices have also started to fall. The US benchmark has fallen by almost a quarter since the start of June.
But there are other factors that have influenced the rise and fall of energy prices this year.
What is happening?
Gasoline prices hit a record high of $5.02 on June 14. At the time, US crude oil was around $120 a barrel and the international benchmark price was several dollars higher. Since then, however, oil prices have fallen.
Oil prices have risen since April 2020 as companies around the world began to recover from the pandemic and begin to reopen. Demand for energy outstripped supplies, causing prices to be high throughout 2021 and early this year. Then, in late February, Russia’s invasion of Ukraine sent oil prices soaring, and prices remained high for the product until June. However, the increase recorded during this year was not as high as the prices that were in 2008, if inflation is also taken into account.
Why is this happening?
High energy prices also contributed to rising inflation in the US, which forced the Federal Reserve and other central banks to raise interest rates. Also, in recent weeks, concerns have increased regarding the direction in which the world economy is heading.
A recession – or even a slowdown in economic growth – affects energy demand and usually causes oil prices to fall. And this scenario is now being feared by investors in the oil sector.
Even if prices continue to fall, the Organization of the Petroleum Exporting Countries (OPEC) said on August 11 that it has lowered its forecast for world oil demand for the remainder of this year and next year.
This organization based these expectations on the belief that economic growth in the US, India and other key countries will be slower than previous forecasts.
What are the other factors?
It’s unusual for gasoline prices to drop during the summer because that’s when traffic is heaviest in the United States. Some analysts believe that high prices have caused drivers to use their cars less, but there is no hard evidence to support this claim.
Some states have suspended their taxes on gasoline, lowering the price of this product for consumers, at least temporarily.
Where are gas prices going?
Most analysts do not think prices will rise in a short period of time and according to them this could happen if there is an unexpected event that could hit oil production in the Gulf of Mexico or even floods in oil refineries. These have happened before and now the state is getting ready for hurricane season.
Patrick De Haan, an analyst at GasBuddy, said this week that if the hurricane season doesn’t hit fuel production, then gasoline prices should fall 10 to 25 cents a gallon over the coming weeks.
Meanwhile, Tom Kloza, an analyst at the Oil Price Information Service, is less optimistic. He said the 58-day period of low gasoline prices may not continue.
In addition to the risk of hurricanes, Kloza said that refineries – which are operating at full capacity – should slow down operations as they will also have to undergo maintenance and the maintenance could take longer.
What is happening to US oil supplies?
The US oil production industry has not yet fully recovered and returned to pre-pandemic production levels. Production is 4.5 percent lower than in 2019, according to the latest US government data released in May.
The US President, Joe Biden, has ordered the introduction of US oil reserves into the market.
Kloza said that “even those who oppose Biden must admit that the introduction of more than 150 million barrels of crude oil from strategic reserves into the market has produced results”, but he added that it is unclear what will happen when these barrels oil will be used up later this year.
What is the role of energy in inflation?
High energy and food prices have been the main contributors to inflation. There are several ways these two components interact. When gasoline prices began to fall in July, this fact began to help ease inflation.
But gasoline prices in July were 28 percent higher than earlier this year, pushing inflation to 8.5 percent./ Taken from REL
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