Gas prices have started to slowly decline thanks to decreasing oil prices, and one analyst is expecting that trend to continue throughout the month.
“With the current volatility — and we’ve seen the reduction in oil prices — there’s also been a reduction in crack spreads, the refining margin on fuels,” Bloomberg Intelligence Senior Energy Analyst Fernando Valle said on Yahoo Finance Live (video above). “So I expect to see lower pump prices over the next month or so, potentially even below $4 a gallon in some parts of the U.S.”
The national gas average is currently $4.72 per gallon as of July 8, according to AAA. While no states have yet dipped back below $4.00/gallon, the southern half of the U.S. — states like Texas, Louisiana, and Mississippi — are seeing prices below $4.45/gallon.
Experts are predicting that short-term gas prices will drop as central banks continue to pressure the market’s demand, though crude prices for industry companies like WTI (WTI) and Brent (BZ=F) lifted past $100 a barrel on Thursday.
“When we look at how hawkish central banks have been, we could see more pressure on oil prices globally,” Valle said. “As there’s not a lot of ways for them to increase supply, so central banks are trying to curb demand as a way to control the effects of energy on inflation. So we think there could be some downward pressure in the short term.”
However, drivers won’t see immediate price decreases at gas pumps, he explained. “Refiners buy that crude 30 to 45 days in advance, and then it still needs to be refined, taken to a wholesaler, and then gets to the retailer. So there’s a filtering-through process.”
Because of the current volatility in markets, Valle added, wholesalers are likely to “take a little bit of time” to pass it through in order to make sure they’re buying oil at the correct price so that they don’t take a loss.
“The same is true of the retailers,” he said.
Despite the short-term optimism, gas prices are expected to remain high throughout 2022 and even beyond, according to the U.S. Energy Information Administration. Based on those estimates, demand will continue to outpace production even with the Fed’s effort to fight higher prices, while geopolitical uncertainty and the resurgence of COVID cases will resume to sway the market.
Valle agreed that the issue of under-supply remains in the near future.
“We think in the long term, we have a supply imbalance that won’t be solved unless we have higher prices for longer,” he said.
Rebecca Chen is a writer and reporter at Yahoo Finance. Follow her on Twitter @RebeccaChenP
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