Gasoline price have dropped by close to 30% over a span of two months when it hit its highest level on record. Granted, it has rebounded by over 10% in the just concluded week. In coming months, it will likely rebound amid the bullish factors of tight supplies and surge in demand.
What’s driving gasoline prices
Demand decline
About two months ago, US gasoline price rallied to the highest level on record at $4.98 per gallon. In a span of about 6 months, it has risen by about 95%. Subsequently, economists argued that the only solution to the soaring prices was the high prices.
A look at the recent gas price movements somewhat validates this assertion. High prices discouraged a significant portion of the consumers from taking leisure trips or even driving alone. According to recent data by the Energy Information Administration (EIA), the 4-week average of the supplied gasoline dropped past the levels recorded at a similar time two years ago at the peak of the coronavirus pandemic. The figures, which are usually a proxy for the commodity’s demand, came at a time when the US labor market remains strong.
Crude oil prices
Another factor behind the decline in US gasoline prices is the decline in crude oil prices. Notably, the two commodities tend to have a direct correlation. In recent weeks, heightened concerns over a recession have been weighing crude oil price; subsequently lowering the prices at the pump.
Where to next?
Investors are now keen on whether gasoline prices will continue to drop in coming weeks. While it will likely remain below $3.50 in the immediate term, I expect it to rebound past the aforementioned level in coming months. To begin with, the expected surge of economic activities in China is set to increase the demand for petroleum products. Besides, global oil demand and tight supplies will likely boost crude oil and gasoline prices in coming months.
