A year after Russia invaded Ukraine, energy prices have been cooling as global economic prospects remain in doubt.
But the future of gasoline prices at the pump is in flux, with many different trends at play that could have an impact on the cost of filling up.
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Since the start of the invasion against Ukraine, crude oil prices have been volatile, rising from $90 a barrel to a peak of above $120 before falling to $76 on Friday.
Among the many factors at play are Russia's ongoing war on Ukraine, whether China's economy will surge as it reopens from covid shutdowns, whether the Fed can gain control of inflation without causing a recession in the U.S., and whether U.S. refining capacity can withstand shutdowns.
Brent crude, the international benchmark price, traded up by 0.12% to $82.95 a barrel Friday while West Texas Intermediate U.S. crude (WTI) gained 1.45% to trade at $76.48.
Gasoline Prices Falling Again
Gasoline prices have been declining again throughout the U.S. The national average price for a gallon of gasoline is $3.34 while the median price is $3.19 a gallon, said Patrick De Haan, head of petroleum analysis at GasBuddy, the Boston provider of retail fuel pricing information.
Three states are seeing gasoline for under $3 a gallon on average - in Texas prices are $2.92 while drivers in Mississippi are spending $2.94 and consumers in Oklahoma are paying $2.98. South Carolina is approaching the $3 mark with the average price at $3.01.
Higher crude oil inventories are placing downward pressure on prices.
Crude oil inventories increased by 7.6 million barrels (MMbbl) to a total of 479.0 MMbbl, which is 63.0 MMbbl or 15.1% above last year, according to weekly data from the Energy Information Administration.
Domestic crude oil production remained unchanged at 12.3 million barrels per day, 700,000 barrel per day higher than the year ago period.
Oil prices in the near term are likely to fall toward the $70s "as global growth headwinds strengthen and excess ‘dark’ inventory exacerbated by a flooding of Russian oil is worked off," wrote JP Morgan in a research note.
However, the Organization of the Petroleum Exporting Countries (OPEC) is likely to lower production to minimize the declines, the bank wrote.
Crude Oil Prices Could Reach $80
Oil demand globally is forecasted to reach record levels in 2023 led by the recovery in China, Rob Thummel, senior portfolio manager at Tortoise in Overland Park, Kan., told TheStreet.
"Global oil supply could struggle to keep up with demand as Russia’s oil production is forecasted to decline," he said. "The net result will be higher oil prices that will rise throughout the year as the economy in China recovers"
Oil prices will remain at $80 a barrel by the end of the first quarter, Thummel said.
"By the end of 2023, oil prices could rise into the $90s," he said. "Of course, the biggest wildcard is the duration and severity of a U.S. and/or global recession that could temporarily reduce global oil demand."
China remains a geopolitical concern, Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, told TheStreet. "At some point they may grow weary of cozying up to the Russians if they don’t have to," he said. "Unity outside of Russia could put further pressure on oil prices upward."
The results of the first-quarter U.S. GDP report, due next month, will provide an indication where oil prices are headed.
"If it's positive, I think prices will make a run at a $100 again by mid to late summer with gas correspondingly at $4 per gallon in the middle of the country and $5 plus on the coasts," Bullock said. "There are a lot of moving parts this year with Ukraine and the economy, he said.
Gasoline prices are likely to increase in the first quarter to the first half of the year as U.S. gasoline inventories are around 10% below historical norms, Thummel said.
"U.S. gasoline demand is recovering while U.S. refinery capacity has been declining due to refinery closings,"he said. "Help is on the way. Exxon is starting up a refinery expansion in 2023 and several new international refineries are coming online in 2023. As a result, gasoline prices [will] likely rise into the end of the first quarter but prices likely moderate in the second half of 2023."
