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Crude Oil Prices Down Due to Recession Fears, Contributing to Lower Gasoline Prices

The average price of U.S. regular-grade gasoline has been falling for weeks, after reaching a record high of over $5 in mid-June. Analysts have said the decrease can mostly be attributed to a drop in the price of crude oil, which has declined largely because of concerns that the global economy may soon experience a downturn, reducing demand for oil. 

Also, survey data indicate that high gasoline prices have caused many U.S. motorists to drive less, and less demand for gasoline helps lower prices as well, one expert told us.

A gas pump at a gas station in Detroit, Michigan, on Aug. 11. Photo by Matthew Hatcher/SOPA Images/LightRocket via Getty Images.

On multiple occasions, however, President Joe Biden and members of his administration have touted the falling gasoline prices, suggesting that the decrease was because of the president’s policies.

“Gas prices are coming down,” Biden said in Aug. 5 remarks about the July jobs report from the Bureau of Labor Statistics, for example. “They’re down almost a dollar a gallon … from where they were just a month ago. And, you know, we’re making progress.”

At the time of Biden’s remarks, average gasoline prices were down about 61 cents from the same week a month earlier, according to weekly data from the U.S. Energy Information Administration. As of the week ending Aug. 15, the average price was almost $3.94. That’s more than $1 less than the high point of $5.01 in the second week of June, but still over 76 cents more than the average price during the week ending Aug. 16, 2021.

But as we’ve written before, U.S. presidents have little control over the price that consumers pay for gasoline. That is why it was inaccurate for Republicans to claim that Biden was the reason that gasoline prices spiked earlier this year. It’s also why Biden can’t claim much credit for falling prices now. 

“No administration really has a lot of sway over gas prices,” Andrew Gross, a spokesman for the AAA automotive organization, told FactCheck.org in an interview. 

In an early August tweet, Patrick De Haan, head of petroleum analysis for the fuel-price tracking service GasBuddy, told his Twitter followers that “the decline in #gasprices is thanks to the free market that also caused high prices.” In July, he tweeted that “NO POLITICIAN can take credit for this,” referring to prices falling to less than $4 a gallon at thousands of gas stations across the country.

Why Have Gasoline Prices Decreased?

Gasoline prices are mainly determined by the price of crude oil, and the price of crude oil is set on the global market based chiefly on supply and demand.

Prices for crude oil and gasoline declined along with economic activity during the early months of the COVID-19 pandemic, when mitigation efforts limited travel around the world. But when countries ended their lockdowns and the global economy began to recover, the demand for oil increased faster than the available supply – leading to higher oil and gasoline prices. Russia’s invasion of Ukraine in February, which resulted in the U.S. and other nations putting sanctions and bans on Russian oil, created more instability in the market and pushed prices even higher.

But oil prices have come down considerably since reaching more than $120 per barrel in early June. As of Aug. 15, the price for West Texas Intermediate crude, which is the U.S. oil benchmark, was down to $92.24, according to the EIA’s most recent daily figures. That same day, Brent crude, the international standard, was $98.25 per barrel – down from over $129 roughly two months earlier.

More recent figures show WTI and Brent crude were trading at around $89 and $95, respectively, as of Aug. 16.

Those declines have contributed to lower gasoline prices.

“Oil makes up about 60% of what you pay at the pump,” AAA’s Gross told us. “If oil comes down in price, that really takes a lot of the pressure off what people pay at the pump.”

Experts have said that a major reason that oil prices have declined is because oil traders fear that major economies worldwide may be headed for an economic downturn that could reduce demand for oil. In the U.S., gross domestic product has declined for two consecutive financial quarters, for instance.

“I would submit that the current pricing now factors in a shallow recession,” Tom Kloza, the global head of energy analysis and a co-founder of the Oil Price Information Service, told us in an email.

The Federal Reserve Bank of New York publishes an almost weekly Oil Price Dynamics Report that looks at the fluctuations in prices based on supply and demand factors. The majority of its reports since late June indicated that oil prices declined due to an increase in anticipated oil supply and a decrease in oil demand expectations.

In its Short-Term Energy Outlook published on Aug. 9, the EIA also said that crude oil prices came down in July “as concerns of slower economic growth or a recession become more prevalent.” Likewise, the International Energy Agency said in its Oil Market Report for August that “rising oil supplies and escalating concerns over the deteriorating economic outlook have knocked around $30/bbl off prices from a peak in June.”

IEA said that world oil supply reached a post-pandemic high of 100.5 million barrels per day in July. Production was up by 530,000 barrels per day from OPEC+, an alliance between the 13-member Organization of Petroleum Exporting Countries and a separate group of 10 non-OPEC members, including Russia. In Russia, production and exports were higher than the previously forecast, the IEA said.

For non-OPEC+ nations, production was up 870,000 barrels per day.

But those are not the only factors contributing to lower gasoline prices in the U.S., Gross said.

“The other factor is [gasoline] demand is down because people have really changed their driving habits to cope with these high gas prices,” he told us.

An AAA survey published July 22 found that 64% of surveyed adults reported changing their driving habits due to higher prices. Of those people, 88% reported driving less and 74% said they had combined errands to reduce trips and save money.

EIA data also show that, as of Aug. 12, the four-week average of finished gasoline supplied, which is an approximation of U.S. demand, was down more than 4% from the same week in August 2021.

“So you have less [gasoline] demand and the [oil] supply is a little less expensive, and you’re going to get these dropping prices,” Gross said.

What Impact Has Biden Had?

Despite those factors, Biden and the White House have been touting the declining prices and suggesting that his policies are responsible.

“I promised I’d address Putin’s price hike at the pump, and I am,” Biden’s presidential Twitter account tweeted on Aug. 11. “We’ve used our strategic petroleum reserve to get relief to families fast – and we rallied our allies and partners around the world to do the same. More work remains, but prices are dropping.”

To counter a decline in the global supply of oil that contributed to price increases, the White House announced in late March that Biden had authorized the release of about 1 million barrels of crude per day from the federal reserve for six months. Around the same time, other nations in the IEA agreed to collectively release 60 million barrels of their own reserve oil.

But the experts we consulted said it’s unknown how much Biden’s strategy has helped with gas prices.

Kloza told us that calculating the per barrel impact of the oil releases is a “completely subjective” exercise. “I’ve said that the White House move to sell SPR crude over six months was and is a gambit — we’ll see if market balances are better when the sales stop this fall,” he said.

Gross also said it was difficult to quantify the emergency oil’s impact.

“There is no denying that since they did it that gas prices have come down,” he said in an interview. “But there have been other factors at play as well. But it certainly didn’t hurt, and it probably helped. But we have no way of knowing how much.”

In an analysis published July 26, the Treasury Department estimated that the SPR releases, in conjunction with the additional releases from other IEA nations, lowered the price of gasoline in the U.S. between 17 cents and 42 cents per gallon.

Kloza said that other administration efforts, such as the Environmental Protection Agency issuing and extending an emergency waiver that allows the sale of gasoline with a 15% ethanol blend, as well as Biden proposing a temporary federal gas tax holiday, which Congress did not adopt, had “little” influence.

“So in the end, what a president does usually has a muted impact on retail prices and that works on the way up, or the way down,” he said.

Where Do Prices Go From Here?

Kloza said it was difficult to predict with certainty what happens now that oil prices have seemingly “congested or coalesced” in the range of $90 to $102 per barrel. 

“Threading the needle for moderate oil prices is difficult since there is a veritable gauntlet (Putin, hurricanes, worries about output from Venezuela, Nigeria, Iraq, Iran, and Libya) to move through,” he said.

A hurricane or other supply disruptions in any of the major oil producing countries could push oil and gasoline prices higher.

In addition, GasBuddy’s De Haan said in an Aug. 15 analysis that increasing wholesale prices for gasoline, which is the price that retailers pay to refining companies, could mean that retail gasoline prices will also increase soon.

“For the ninth week straight, gas prices have continued to fall, but the streak is at great risk of being broken this week with wholesale gasoline prices having bounced back up some 40 cents per gallon as oil prices have rebounded,” he wrote. 

“That means the decline in average prices could wrap up soon, with some price increases possible as early as this week, especially in areas of the Great Lakes,” he continued. “While the West Coast and some areas of the Rockies may see prices continue to drift lower, I do believe the national average could tick higher this week as the better than expected jobs report last week likely means less demand destruction than anticipated.”

The EIA projects that retail prices will average $4.29 a gallon through the third quarter of 2022 and drop to an average of $3.78 in the fourth quarter.

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