Democrats could lose reprieve on gas prices

Data: AAA; Graphic: Jacques Schrag/Axios

Falling gas prices may be a political relief for President Biden and Democrats, but there’s no guarantee they won’t rise again before the midterm elections.

Driving the news: The national average has fallen nearly 60 cents since breaking $5 a gallon in mid-June, per AAA, though costs remain high.

The big picture: Future oil and gasoline prices are notoriously difficult to determine, and this moment is particularly loaded with wild cards. But analysts see the possibility of another price surge in the coming months, even if the markets have eased somewhat.

Two main risks:

  • Tougher European sanctions and other efforts to reduce Russia’s fossil fuel export bonanza – moves that could reduce production there.
  • An active hurricane season could produce powerful storms hitting the Gulf Coast.

What they say : According to energy analyst Bob McNally, the crisis sparked by Russia’s invasion of Ukraine creates perhaps the greatest risk of prolonged energy disruption since the 1970s.

  • “To paraphrase Winston Churchill, we are not even at the end of the beginning of this energy war, of this conflict, let alone the beginning of the end,” he said.
  • “I think this is very different from any other geopolitical crisis since the late 1970s,” McNally, chairman of Rapidan Energy Group, said in an interview.

The International Energy Agency reported this month that Russian supply has so far remained “resilient”, but added:

  • “While an EU embargo on Russian oil is expected to come into full effect at the end of the year, the oil market could tighten again.”

Don’t sleep on the weather nor is climate change. The National Oceanic and Atmospheric Administration predicts that this year’s Atlantic hurricane season could be unusually active.

  • Major storms hitting the Gulf Coast refining belt could reduce gasoline production and transportation in what is already a tight fuel market.
  • GasBuddy oil analyst Patrick De Haan says that absent disruptions, he sees national average gas prices returning to below $4 a gallon.
  • But he adds: “If we see a major hurricane, there could and probably will be a deep impact, especially if it’s a Category 4 or 5, maybe even Category 3 storm. “
  • “If we see this between New Orleans and Houston, I would say all bets are off and there is definitely potential for us to go back to $5. [per gallon]”, said De Haan in an interview.

The plot: Fed interest rate hikes are expected to slow the U.S. economy, but the overall global economic picture is mixed, while COVID politics in China — the world’s second-largest oil consumer — is also a variable.

  • McNally said the main reason oil and gasoline prices have fallen is that “the market is pricing in recession risk,” and he also notes that U.S. demand for gasoline has been weak and inventories increase.
  • “But if you look outside of the United States, the demand is quite strong. Especially in India, China is coming back,” he said. It’s possible, he adds, that until a few weeks ago traders underestimated the risk of a recession, but are now overestimating it.
  • De Haan is watching the next quarterly US GDP data arrive next week, which is expected to be weak. “If there is an upside surprise there – i.e. better than expected GDP – that could trigger another [price] rally too,” said De Haan.

What we don’t know: The election fallout from the recent price spikes and declines.

  • Doug Sosnik, former political adviser to Bill Clinton, said the effect of lower prices on Democrats may help prevent further anger, but added: “In the short term, I don’t think you get much credit. politically”.

The bottom line: “It’s way too early to conclude that we’ve seen the peak and everything is down from here for prices,” McNally said.

About Therese Williams

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