Gas Prices Fueled Summer Inflation. That Is About to Change.
Prices at the pump are tumbling, even as war rages in the Middle East
WSJ
Gasoline markets have shifted into reverse.
Wholesale costs have slid in recent weeks, undoing a late-summer run-up that sparked fears of an inflationary shock while promising relief to drivers and the Federal Reserve. Already, gas stations around the U.S. are cutting prices at the pump, a trend that traders on Wall Street suggest will continue in the coming weeks.
The about-face has hammered fuel makers’ margins, slimming the profits they make from gasoline to their lowest levels since late 2020, according to FactSet. Investors have tapped the brakes and, at least momentarily, halted a yearslong ascent in refiner stocks to record or near-record highs.
The declines have come as the end of summer driving season paved the way for a cyclical dip in American fuel prices and gas guzzling. Analysts are also looking at another factor adding momentum to the downward turn: Prices rose high enough that they pushed some drivers in the U.S., Europe and elsewhere to stay off the road.
Remote work has allowed white-collar Americans to commute less when costs rise, economists say, while others in recent months either wound down ride-sharing gigs or nixed vacations.
In Philadelphia, Carl Jones cut back on escapes from his day-to-day grind as a community-college administrator, pausing frequent movie-theater visits and skipping road trips to see family and friends.
Like many others, his salary increases in recent years have failed to keep pace with overall inflation that has propelled the cost of everything from rent to haircuts. “It doesn’t seem like there’s any stop for this,” the 49-year-old said.
“I spend the same amount of money, but I don’t buy as much gas,” said Jones.
But the energy costs that have kept inflation stubbornly stable in recent months, irking central bankers and investors, are now offering signs of relief.
A gallon of regular gasoline ran drivers an average of $3.63 nationwide Friday, according to AAA, down 5.8% from a month ago. Prices vary regionally with taxes as well as pipeline and storage capacity, meaning some drivers have reaped more benefits than others.
Gas stations monitored by AAA in Pittsburgh kept prices level over the past month around $3.86 a gallon, while those in Athens, Ga., trimmed costs by 18% to an average of $2.92. Des Moines saw 20% declines over the period to $3.19 a gallon.
Financial markets indicate that the nationwide decline has room to run. Contracts for November shipments of wholesale gasoline into New York Harbor have tumbled more than 23% since their 2023 high point on Aug. 11, recently trading at $2.27 a gallon.
Gasoline’s slide has hurt refiners’ incentive to order crude, weighing on oil prices that only weeks ago reached 2023 highs and put $100 crude in Wall Street’s sights. Benchmark U.S. crude has edged 6.7% lower since Sept. 27 to $87.69 a barrel.
While Israel’s war with Hamas threatens to expand across the Middle East to oil-rich Iran, U.S. officials haven’t linked Tehran directly to the Palestinian militant group’s initial assault. Treasury Secretary Janet Yellen, whose agency oversees sanctions on Iranian crude, said all options are on the table in responding to the violence.
On Friday, traders bid up crude prices as Israeli troops massed near the country’s border with the Gaza Strip in preparation for a potential ground invasion. Wartime price increases “tend to fade quickly if oil supplies are not impacted,” UBS recently told clients.
Many traders and analysts are also focusing on hard-to-parse consumption signals that suggest this summer’s high fuel prices curbed demand in some regions.
Federal record-keepers say U.S. gasoline consumption in the third quarter dropped 60,000 barrels a day from last year, a 0.7% annual decline, and the International Energy Agency on Thursday reported “signs of demand destruction in the United States.”
A strong dollar made oil imports abroad more expensive and contributed to similar declines across Southeast Asia and West Africa, according to J.P. Morgan. Analysts at the bank noted that price increases driven by supply shocks—such as production cuts by Russia and Saudi Arabia in recent months—are harder for economies to handle than demand-driven rallies.
Energy analysts at OPIS and elsewhere also pointed to high margins at retailers and refiners adding pressure to drivers’ budgets. OPIS is a part of Dow Jones & Co., publisher of The Wall Street Journal.
Futures markets implied that the average daily profit for producing gasoline reached nearly $30 a barrel in August and September, far higher than the 20-year daily average of less than $17 a barrel.
“It was not crude oil,” petroleum economist Philip Verleger said of the late-summer jump in prices at the pump. America’s refining capacity has ticked downward in recent years.
Although gasoline margins plunged more than 70% over the past month, according to FactSet, diesel profits remain more than double their 20-year daily average, shielding refiner stocks from greater pain.
Marathon Petroleum shares have fallen about 4.7% over the period, while Phillips 66 is down 10% and Valero has slumped by 13%.
Major convenience-store owners, despite higher labor costs and reduced sales of prepared foods and other products, are also weathering the pullback. Analysts say lower gasoline prices going forward could entice Americans to fuel up more frequently.
Speaking on an earnings call last month, Casey’s General Store Chief Executive Darren Rebelez said higher profit margins from fuel are here to stay.
