According to AAA data, the U.S. average has fallen 20% since its June peak as fears of a global recession have caused gasoline prices to drop significantly.
For the first time since early March, the national average for a gallon of gas has dropped below $4, which is a crucial psychological threshold for financially constrained Americans even though inflation is still high.
According to AAA, the U.S. average fell 2 cents overnight to $3.99, a 20% decline from its record above $5 in June. Energy prices rose earlier this year as a result of the Russian invasion of Ukraine, but as markets prepared for a potential slowdown in the world economy, they began to decline.
Relentlessly high inflation
The most perplexing economic issue facing the country is persistently high inflation, which has led to months of recession talk despite soaring job growth (U.S. companies added 528,000 positions in July) and solid consumer spending.
However, reduced pump prices imply a lighter burden on the overall economy, as seen by official data issued on Wednesday showing a decline in inflation in July. According to the Bureau of Labor Statistics, while overall prices are still high and have increased by 8.5 percent annually, they have decreased from the epidemic peak of 9.1 percent, which was reached in June when the average price of gasoline in the United States reached $5.02. In July, the gasoline index decreased 7.7%.
It’s a significant respite for consumers and businesses, many of which have been hurt by higher diesel prices. According to a calculation made by the fuel-tracking app GasBuddy, Americans now spend around $400 million less each day on gasoline than they did in June. According to AAA spokesperson Andrew Gross, more than 60% of the nation’s gas stations have set their normal unleaded gasoline prices at $4 or less. In certain places, it has fallen below $3.
Gas and oil prices
Fears that the Russian conflict would reduce supplies and disrupt energy markets, as well as the resulting sanctions on Moscow and the ongoing effects of the coronavirus pandemic, have caused gas and oil prices to swing drastically. In January, crude prices were roughly $80 a barrel, but by March, they had risen beyond $120. Pump prices increased significantly the following week, a week after the invasion that started on February 24.
“2022 is unlike anything we’ve ever seen at the pump. According to Patrick De Haan, head of petroleum analysis for GasBuddy, “we’ve seen gas prices react in ways never experienced before, rising from $3 to $5 and now back to $3.99.
However, since early June, the price of oil has been declining, and West Texas Intermediate crude, the U.S. benchmark, is currently trading at roughly $94 per barrel. The price of gasoline has returned to pre-war levels.
According to experts, a number of recessionary warning signs in various sizable global economies are to blame for the current decrease in petroleum prices. According to Raymond James investment banker Pavel Molchanov, slower economic development has a negative impact on demand worldwide, including emerging nations as well as the United States and Europe. A supply or price shock in one area of the world will have an impact on everyone because oil is a global commodity.
This serves as a timely reminder that the price of oil is determined by global macrotrends, which are largely beyond of the authority of national governments.
For months, economists have been expressing concern about a potential US recession. Despite the Labor Department’s eye-popping jobs report from last Friday, Jeff Buchbinder, chief equities strategist for LPL Financial, said in a Monday note that he believes the chances of a U.S. recession in the coming year are “maybe a coin flip or better.” By the fourth quarter of 2022, Britain would experience a prolonged recession, the central bank of England predicted this week.
National Bureau of Economic Research
Even though economic activity has already decreased for two consecutive quarters, the National Bureau of Economic Research has not declared that the United States is in a recession.
However, fuel demand has already decreased: According to the U.S. Energy Information Administration, it was 8.6 million barrels per day as of July 29 when calculated as a four-week moving average. That represents an 8.7% decrease from a year earlier.
According to a July AAA study, individuals are driving less, combining errands, or delaying vacations to counter rising gas prices. Some respondents mentioned buying an electric automobile, switching to a more fuel-efficient vehicle, or using the bus or train.
Neeny Tyo, 64, claims that the growing expense of things is the reason she withdrew from teaching painting in June.
She used to enjoy the 45-minute trip to nearby Lisbon from her home in Massena, New York. However, she was now paying $300 a month to fill her tank as gas prices rose.
Going to work wasn’t even worthwhile, Tyo declared. I would spend $20 for maybe a quarter-tank, and I would use that up in a day or two.
Reduced driving was a result of increasing fuel prices for Mary Ann Ruiz, 71, in her California hometown of Chino. She continues to spend more than $5 a gallon even though prices have decreased since mid-June, when a gallon of unleaded gasoline averaged $6.35.
To avoid sticker shock, Ruiz has begun bundling his errands. She travels less for pleasure and is more likely to fly than to drive.
While this is going on, there is still a good chance that prices will recover. President Joe Biden and other world leaders have pleaded with OPEC, the organization of oil-producing countries that includes Saudi Arabia, to increase output, but little has changed. The cartel is being cautious about raising output because it anticipates “pretty poor” oil demand in Europe for the majority of the upcoming year.
Analysts also point out that Russia’s war in Ukraine, which is mostly to blame for rising gas prices, is still ongoing, as are the Western sanctions intended to punish Moscow. J.P. Morgan has cautioned that the price of oil may increase to $380 per barrel, more than quadrupling what it is now, in the worst-case scenario, in which Russia retaliates by completely shutting down its supplies.
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