Better grab it while you can, before it slips through your fingers!
The euphoria is contagious. In some areas of the country, gasoline pump prices have fallen 12 cents per litre in one week, and we are seeing the lowest prices in four months!
So, what’s going on? Have the oil companies given up? Will the road tax breaks continue? Are the consumers the victors? Have the efforts by President Joe Biden to increase the supply of crude been the key factor in the drop on prices?
Sorry to have to tell you but, you can also grab that dream and hold onto it before it morphs into reality.
If you want to know the real reason for plummeting gasoline and diesel prices, you need only look at the latest U.S. inventory report.
Levels of crude increased due to draws from the Strategic Petroleum Reserve (SPR), as well as a slowdown in exports, which is positive, only to be countered by the fact that crude inventories are still 7% below the 5-year average. Any help from OPEC has been cancelled with their latest table crumb offering of a 100,000 bbl increase in crude supply. My interpretation of this move is that they are hoarding supply in anticipation of a demand crisis spike this fall and winter.
I can hear some people saying, “So what! Let’s get back to today and the sunny days of summer. Pump and rack prices are cratering, which is a good thing!”
But it’s why they are, which is not such a good thing.
Gas prices are falling because demand has evaporated. It is not just gas demand that has fallen but also jet fuel and others in the distillate family of refined products. In the shadows of high interest rates, inflation, and a recession hovering over the heads of consumers, many are drawing in their bull horns and have stopped buying what they absolutely do not need and are choosing to try and ride out this storm.
The demand and pump price lull should continue through to the end of the driving season, which is Labour Day. After this, all bets should be on a wakeup call from the docility of pump prices because gasoline prices will be driven by those of diesel and heating oil.
Oh, and by the way, distillate inventories today are 25% below the 5-year average.
If we don’t see a monumental increase in these levels soon, the gasoline and diesel prices we are seeing today will be a fond but brief memory.
– Roger McKnight – B.Sc., Senior Petroleum Analyst