Gasoline prices just dropped more in a single-day than they have in over a decade.
Gasoline fell overnight to $4.721 per gallon, a 3.1% drop that was larger than any since December of 2008, according to AAA. This marks the 24th straight day of price declines, a streak unmatched since April of 2020 as the Covid pandemic took hold of the economy.
The drop in prices comes as investors begin to fear an oncoming recession due to inflation driving the Fed to raise interest rates and cool the economy. Meanwhile consumer sentiment is plummeting, and retailers are reporting earnings shortfalls, leading some to conclude the economic situation is already serious and getting worse, and only has yet to see the official numbers reported.
This fear is causing a drop in oil futures, as investors assume overall consumption is diminishing and oil will lose value as time goes on. Since oil accounts for about 60% of the price of gasoline, this is reducing the price of gasoline. Meanwhile, many suspect demand destruction produced by the high prices is reducing demand for it.
The news will be welcomed by the White House, which has been trying various means to lower pump prices, including selling off oil from the Strategic Petroleum reserve, all to no avail.
Gasoline prices still remain relatively high, however. Presently they are about $1.60 higher than they were this time last year. In 10 states a gallon of gasoline still costs over $5, and in California it is over $6.
The price decline may not last, however. As gasoline declines in price, it will reduce inflation since gas prices are a major source of inflationary forces. As inflation is reduced, the fears of an economic slowdown that are lowering the prices will reduce, oil futures may rise, and so will the price of gas. In addition, Goldman Sachs made a compelling argument that oil’s decline is temporary, and it will rapidly begin rising again soon.
Supply also remains tight, in large part due to a bottleneck in refining capacity. Despite refiners on the Gulf Coast and East Coast working at full capacity, total national gasoline stockpiles are at their lowest seasonal level in seven years. On the east coast, seasonal inventories are the lowest they have ever been since the government began tracking the data in 1993.
