For weeks now, gasoline prices have been on a downward trajectory and are hitting record lows. According to AAA, prices at the pump have fallen for 34 straight weeks.
Here in Texas, we’re enjoying the cheapest gas prices in the nation, where the average is below $3 per gallon. This against the backdrop of rising global tensions and growing concerns of conflict in the Middle East.
Matt Smith, energy analyst for Kpler, joined the Texas Standard to explain the trend and whether we can expect it to continue through the coming weeks.
This transcript has been edited lightly for clarity:
Texas Standard: I think this is always a challenge for people who see prices at the pump falling, but they’re hearing about, you know, all these geopolitical tensions on the rise – and of course, we’ve all been following the turmoil in Gaza. What accounts for prices at the pump dropping below $3 a gallon in Texas for the first time since March?
Matt Smith: Right. And that’s the thing: So typically oil prices are the key driver of prices at the pump. But, you know, we have seen prices rise, as you’ve said, with geopolitical concerns. But it’s this time of year here is we typically see gasoline prices dropping as demand drops as we come out of, you know, summer driving season and we move to a cheaper winter blend.
So the formulations of the gasoline, that’s changed?
Yes. But it’s also because we are seeing weaker demand than expected. And even though we’re kind of going through refinery maintenance season here, which means less production of gasoline, we’ve actually been seeing gasoline inventories increasing in September into October, which is this sort of counter seasonal trend. And so that has really kind of surprised the market. And to your point, you’re just seeing gasoline prices around the country, but particularly in Texas, dropping to a decent lows here.
Weaker demand – did I get you right?
Yeah, that’s it. So you typically see weaker demand as you move into the fall, just because we’re doing less driving because of vacations and that type of stuff. But it has really dropped lower than expected. And so that has really kind of spooked things a bit.
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What do you think accounts for that weaker-than-expected demand?
It’s difficult to say. It may be related because we have had high gasoline prices, but it doesn’t feel like that. The one concern is that it could be kind of a preemptive signal of weakening in the U.S. economy. But really it’s a little bit of a head scratcher.
You’re seeing higher inventories; you’re seeing lower demand. And so it’s a combination of factors that are pointing to this weakness. And so it makes sense that we’re seeing lower gasoline prices here, even if we can’t exact pinpoint the reason why.
Well, of course, on the flip side, we’re seeing U.S. natural gas prices going the other direction. I have a hunch that has to do with winter.
Yes, exactly. So we are actually seeing prices come off today because the weather outlooks are looking warmer through mid-November here. But then we have that U.S. benchmark was up 20% in October, about that to a level close to $3.50/MMBtu – that’s up like 50% from where we were in June.
But to your point, you know, it was the colder weather that has driven that. One thing to bear in mind as well is that LNG exports, at least according to our data, were at a record last month. And so you’re seeing a record amount of U.S. natural gas leaving the country. And that’s a trend that’s going to continue going forward here.
I presume that the demand is greatest right now in Europe where you have the Ukraine conflict ongoing?
Well, actually, there is demand going to Europe also with Asia as well. But Europe has got itself into a strong situation in that because of, you know, the lack of flows from Russia, they have essentially made sure that their natural gas storage is absolutely full. And so it’s basically at 99%.
So they’re in a great situation going into winter. But if they do get colder conditions that could draw down that natural gas storage very quickly … they have to make sure that it remains full to the gills there.
Well, as you know, a lot of folks are anxiously watching what’s happening with Israel and Gaza. How much of a factor is that going to be going forward, and what are the markets telling you?
Well, we’ve seen that geopolitical premium worked out of prices. And so we’re back to the levels we were at previous to the initial start of trouble in Gaza.
But from day to day, you can just see in the prices that they’re very volatile. You know, we see prices rally strongly, then sell off strongly. And so it just really points to how things are really on a knife edge.
And so it’s going to be a concern going forward here. Even though it’s not impacting supply, there’s just the concern of it spreading to have a broader impact. That is the worry for the market here.