Gasoline price remains on a downtrend; extending its losses to its lowest level in close to three months in Wednesday’s session. Over a span of one month, RBOB gasoline futures have plunged by over 25%. As at the time of writing, it was at $3.17 after dropping to $3.14 in the previous session.
Analyst’s outlook
On Wednesday, GasBuddy’s head of petroleum analysis, Patrick DeHaan indicated that US gasoline price may continue to drop for as long as there is no unexpected change in the demand and supply dynamics.
He further predicted that gasoline futures have an opportunity to record the largest daily loss over the past decade.
What’s weighing on gasoline price?
In mid-June, gasoline price surpassed the psychological level of $5.00 per gallon for the first time on record. Notably, the surge was a reflection of the high inflation that consumers in the US and the world at large continue to experience.
Interestingly, the surge in inflationary pressures is also the reason why gasoline price is on a decline. Investors are concerns that the US economy and broader global economy may get into a recession as various central banks aggressively tighten their monetary policies. In particular, there are heightened bets that the Federal Reserve will approve additional super-sized interest rate hikes after inflation rose to a 41-year high in June YoY.
The high inflation and subsequent strengthening of the US dollar have been weighing on crude oil and gasoline prices. While the situation may not have yielded demand destruction, there is evidence of slowed oil demand. According to the Energy Information Administration (EIA), US demand for energy products such as jet fuel, diesel, and gasoline have dropped by over 10% compared to the pre-pandemic levels.
While gasoline price at the pump may continue to drop in the short term, futures will likely be subject to heightened volatility as is the case with crude oil prices. In addition the rising COVID-19 cases in China, the probable decline in economic activities in the US and the world will continue to weigh on the commodity.
