Reuters, July 14 – Prices for gasoline in the United States, the world’s largest user of the fuel, have finally begun to decline, bringing some comfort to customers.
Even though gas prices have dropped from a record high of $5.014 a month ago, they are still more than $1.485 more than they were last year, according to the American Automobile Association.
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Prices are expected to continue declining for the foreseeable future. The strong currency and high oil costs in the United States have reduced the global demand for gasoline. After then, it’s not clear if prices will continue to decrease or if they will stabilize.
Why Have Gasoline Prices Fallen?
In the futures market, both crude oil and gasoline prices have fallen. Investors fear that interest-rate rises may impede the economy as central banks become more active in tackling increase, which is causing the markets to fall.
According to the Energy Information Administration, demand for gasoline, jet fuel, and diesel in the United States has decreased by more than 10% since the beginning of the epidemic. Gas stations have lowered their prices in response.
The value of the dollar plays a role as well. An increase in the value of the U.S. dollar makes oil more costly for holders of currencies other than the greenback. The dollar index, which measures the value of one dollar against a basket of six other currencies, hit a record high earlier this week, rising to 108.56, the highest level since October 2002.
Where Have Gasoline Prices Declined The Most?
46 states and the District of Columbia have witnessed a decrease in the cost of goods and services. Price cuts of 52 cents and 51 cents have been placed in the Midwest during the last month, respectively. Some Rocky Mountain states and Hawaii have actually seen an increase in costs over the past month.
U.S. Gasoline Prices Down From Peak
Gasoline prices have fallen across the board in the last month, but the Midwest and South have seen some of the most dramatic reductions in retail pricing.
Will Gasoline Prices Continue To Fall?
Retail prices are expected to continue to fall, but the futures market is still extremely unpredictable. The weakening of China’s economy and the ongoing incidences of coronavirus might lead to decreased gasoline consumption, which would result in cheaper prices later in the year.
What Role Do Wholesale Gasoline Prices Play?
Insufficient refining capacity in the United States has led wholesale gas prices to climb faster than crude oil prices, increasing the price of gas.
Although the 321 crack spread, a proxy for refining profits, has fallen $15 from its peak last month, it still stands at $45.50, which is historically high. As a result, the process of turning oil into gas is highly profitable for refineries.
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There is a $1.20 difference between the amount refiners sell gasoline for and what consumers pay for it, compared to an average of 87 cents since November 2016.
A Big Gap Between Retail and Wholesale Gasoline Prices
When gasoline prices fall, the difference between wholesale and retail pricing grows because retailers take longer to cut their prices. In July, the price of gasoline futures fell, but retail prices have fallen less quickly.
When retail prices decrease dramatically, wholesale prices typically diverge from retail prices. This is because retailers are slow to react to price fluctuations.
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