Houston — With key crude oil benchmarks plummeting in value in recent weeks, US drivers already appear to be benefiting from cheaper gasoline and will likely continue to do so heading into the summer driving season.
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After being assessed at $74.69/b on May 16, Platts Dated Brent, perhaps the most important oil benchmark in the world, came crashing down and was assessed at $62.105/b on June 5, more than 16% down.
Platts WTI crude oil assessments at Cushing, Oklahoma, showed a similar pattern and dropped more than 17% over the same time frame. Those prices have recovered somewhat since June 5, but still remain below their levels from mid-May.
To explain this trend, crude oil analysts have pointed to mounting trade tensions between the US and China, two of the world's largest economies and oil product consumers, which exacerbates the possibility of weaker global crude demand going into the summer.
Those worries have been compounded by the latest data from the US Department of Labor, which showed that US job growth slowed notably in May, and data from the UK's Office for National Statistics released Monday, which showed UK GDP growth slowed to 0.3% in April, down from 0.5% in the first quarter. The US jobs report in particular "added to the suspicions that the economy may be slowing faster than had previously been anticipated," S&P Global Platts Analytics said in report released last week.
At the same time, analysts also see bearish signals from the supply side of the US crude complex.
US crude stocks normally start to decline in May as US refineries ramp up production to take advantage of summertime cracking margins. However, the latest EIA data, released June 5, showed US stocks were up roughly 17 million barrels since May 3 and were more than 7% above their prior five-year average.
GASOLINE FUTURES, PUMP PRICES DROP
With crude oil prices trending downward, expectations for gasoline prices during the US summer driving season have moved lower, which is unsurprising as the EIA says crude oil prices are the single most important influencer on gasoline prices.
AAA, the auto club, said "the price of crude is a driving factor when it comes to retail gasoline prices, accounting for nearly 60% of the price motorists see at the pump year-round."
This trend is most readily observable in the NYMEX RBOB futures complex: the August RBOB futures contract, which can be thought of as barometer for summertime gasoline price expectations, has plummeted lower since May.
After settling at $1.9986/gal May 16, the August RBOB futures contract settled at $1.7048/gal Monday, a loss of more than 14%.
AAA currently puts the national average pump price at $2.74/gal, which is 7 cents cheaper than last week, 13 cents less than one month ago and 18 cents lower year on year.
Some states are seeing greater declines than others, with weaker prices most pronounced in the Midwest, a region which is recovering from severe flooding.
AAA said that the average pump price for regular grade in Ohio, Indiana, and Michigan were down 21 cents, 17 cents, and 15 cents on the week, respectively.
Most recently, S&P Global Platts assessed benchmark Tulsa suboctane grade gasoline at July NYMEX RBOB futures minus 6.75 cents/gal Monday, down 1.25 cents from the prior day.
SUMMER FORECAST POSITIVE FOR DRIVERS
In this context, many forecasters believe that this summer will be kinder to US drivers' finances than the summer of 2018.
After averaging $2.84/gal in Q3 2018, the EIA now expects the 2019 Q3 average to be $2.73/gal. The EIA issues its short term energy price outlook each month and it is worth noting that the current forecast for Q3 2019 is 7% below the same forecast from one month ago.
AAA more or less agrees with the EIA and said that it believes the average US pump price will average $2.70 per gallon this summer. If that proves accurate, it would represent the cheapest summer gasoline prices in two years, according to AAA data.
"The national average is poised to fall to at least $2.70 this week -- an indication that pump prices may be even cheaper this summer," AAA spokeswoman Jeanette Casslenano said Monday, citing strong US refinery utilization and cheaper crude oil prices heading into June.
--Seth Clare, firstname.lastname@example.org
--Edited by Pankti Mehta, email@example.com