US gasoline prices could fall to $3 a gallon on oil selloff, rising stocks

Gasoline prices in the United States are expected to drop in the coming weeks, potentially reaching $3 a gallon in many areas. This decrease in prices could benefit consumers and help alleviate concerns about inflation. However, it may also indicate economic weakness, as recent data shows that gasoline demand is at its lowest seasonal level in 26 years.

Gasoline prices had previously seen a 7.4% increase in the third quarter, driven by production cuts from members of OPEC+ such as Saudi Arabia and Russia. But now, U.S. wholesale gasoline prices are plummeting, with drops ranging from 6.9% to 10.8% per gallon. This decline is due to a combination of factors, including economic fears and dwindling demand.

The U.S. Energy Information Administration reported that the four-week average of motor gasoline product supplied, which serves as a proxy for demand, is down 5% from the same period last year. Severe rain and flooding on the East Coast have also deterred drivers and influenced the demand data. Additionally, gasoline stocks increased by 6.5 million barrels in a week, surpassing analysts’ expectations.

JP Morgan noted in a statement that high fuel prices have led to consumers cutting back on driving, suggesting that current prices may be nearing consumers’ pain threshold. The 3-2-1 crack spread, a measure of refining margins, has also dropped below $20 a barrel for the first time in 18 months and is down almost 40% in the past month.

Tom Kloza, the global head of energy analysis at the Oil Price Information Service (OPIS), predicts that gasoline prices could fall to around $3 a gallon in regions including the Midwest and East Coast in the coming months. Some retailers in 20 U.S. states are already charging under $3 a gallon, and Kloza anticipates that half of the country will reach that level by the end of October.

The recent selloff in gasoline prices is surprising considering factors like a ban on diesel exports from Russia, ongoing oil output cuts from OPEC, and seasonal refinery maintenance that reduces fuel production. However, the decline can be attributed to concerns about the economy, with the U.S. ADP National Employment Report showing that private payrolls only increased by 89,000 jobs in September, the smallest count since January 2021.

Overall, the drop in gasoline prices may have both positive and negative implications. While it can benefit consumers and help cool inflation, it also reflects potential economic weakness. As the situation continues to unfold, it will be important to monitor how these changes impact the energy market and consumers’ behavior.