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Commodities Corner: Gasoline prices may have reached their peak for the year

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The bad news is you’re probably paying the highest U.S. gasoline prices you’ll see this year. The good news is demand for the fuel is set to drop more than it usually does in September, taking prices down with it, according to the Oil Price Information Service.

Assuming no major disruptions from Atlantic storm activity, “the direction of fuel prices should be lower through the rest of the year,” Tom Kloza, global head of energy analysis at the Oil Price Information Service (OPIS) by IHS Markit, told MarketWatch. “One can easily make a case for the average price…and median price dropping well below $3 a gallon.”

The national average price for gasoline was at $3.18 a gallon on Tuesday, according to AAA, a fraction of a cent below the week-ago average.

AAA

“With COVID cases levels on the rise, there are more than the usual worries about demand declines for motor fuel,” wrote Denton Cinquegrana, chief oil analyst at OPIS, in a report released to clients on Tuesday.

Gasoline prices traditionally decline from August into September as schools reopen and U.S. family vacation travel become much more limited, he said. However, “the wave counts for COVID cases may have an inverse relationship with gasoline demand.”


“The wave counts for COVID cases may have an inverse relationship with gasoline demand.”


— Denton Cinquegrana, OPIS

Last year, OPIS said the Energy Information Administration showed that August to September seasonal gasoline demand edged up by 0.4%. For 2019, the EIA showed a 6.5% decline for the period.

Cinquegrana said the Centers for Disease Control and Prevention recently noted that the week of Sept. 4, which includes the Labor Day holiday, may see anywhere from 500,000 to 2.34 million new COVID cases reported.

That does “not bode well for post-Labor Day gasoline demand and may also cause some demand hiccups for the holiday weekend,” he said. Labor Day falls on Sept. 6.

Even before COVID, the seasonal decline from August to September has become “more drastic,” he said, with demand dropping by around 2% or so in 2015 and 2016, according to the EIA, but swelling to a loss of 6% in 2018 and 2019.

Cinquegrana also said there are worries about demand for jet fuel, noting that search volumes from flight-search website Kayak show that over the past week, air travel inquiries have been about 40% below the same period in 2019.

“Some might argue that less air travel could boost driving trips of several hundred miles,” said Cinquegrana, but the “more cogent worry involves supply.” Refiners with “lower prospects for jet fuel sales can limit the jet yield, but only if they increase cuts for gasoline or diesel,” he said, implying supply increases for gasoline and diesel.

U.S. gasoline demand may still top 9 million barrels a day when the EIA reports the Labor Day surge figure on Sept. 9. However, “a 6.5% drop from recently flat levels implies weekly EIA reckonings below 9 million b/d,” said Cinquegrana.

OPIS expects gasoline consumption to continue to “trail 2019 by double-digit percentages, suggesting considerably lower numbers,” he said.

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