Average retail gasoline prices have fallen in five consecutive weeks, putting many Americans on track to pay much less for fuel this summer and potentially boosting U.S. consumers at a time when many analysts are projecting a slowdown in economic growth.
Gasoline prices dropped as U.S. crude oil, the main raw ingredient in gasoline, fell into a bear market last week, down more than 20% from its April peaks. The average U.S. price for a gallon of regular gas has hit its lowest level in more than two months, figures from price-tracking firm GasBuddy show, with prices in some parts of the country sliding below $2.
The decline comes as many investors fear trade frictions will fuel a slowdown in spending by businesses and consumers, two of the main drivers of economic output. Some savings at the pump during the busy summer travel season could help quell some of those jitters, investors say, giving the 10-year-old economic expansion a further boost.
At the same time, many analysts use the price of oil as an indicator of momentum in the world economy because it is critical to shipping and transportation. Some fear its latest decline is a warning signal that world demand is already slowing more quickly than expected.
“From a timing perspective, if you’re a driver or consumer, there’s no better time to see a $15 drop in oil,” said John Saucer, vice president of research and analysis at Mobius Risk Group.
But if the slide is portending a sharp economic slowdown or recession, “that would probably more than offset any positive they get from saving a few cents per gallon or few dollars per tankful,” Mr. Saucer said.
The average U.S. price for a gallon of regular gas now stands at $2.73, its lowest level since early April, GasBuddy data show. Prices are down 16 cents from their May peaks and 19 cents in the past year.
The decline has come with U.S. crude-oil prices slipping from a 2019 peak of $66.30 a barrel to Monday’s close of $53.26. Even as stocks and other riskier assets rose Monday after the U.S. and Mexico reached a deal that removed the threat of tariffs on billions of dollars of Mexican imports, oil fell 1.4%—a sign that investors remain wary of a supply glut.
Those worries have intensified in recent days with the U.S. now producing a record 12.4 million barrels a day of crude oil and domestic inventories climbing to their highest point in nearly two years, according to weekly Energy Information Administration data. Those increases have been a negative to some traders and investors but could boost consumers, analysts say.
“Maybe this is a nice way to make sure consumer spending stays a little more consistent this summer, even if we’re still seeing continued concerns about a protracted trade war with China,” said Shannon Saccocia, chief investment officer at Boston Private.
Last week, the total amount of oil, gasoline, diesel and other refined products stored in tanks or pipelines in the U.S. rose by 22 million barrels, the biggest one-week increase in data going back nearly 30 years and the latest worrisome signal to those wary of crumbling demand coinciding with steady supply.
Gauges of retail gasoline demand and the amount of oil taken in by refineries have also been tepid, trends some think will reverse if prices continue to slide.
“If you see prices for crude continue to come down and the price of gasoline moves with it, you will see demand pick up,” said Gene McGillian, vice president of research at Tradition Energy.
Some analysts expect fears about excess supply will continue to hurt energy prices and shares of producers. Many of the world’s largest energy companies reported weaker-than-expected first-quarter earnings, hurt by the drop in oil. Sanctions on Venezuela and curtailed Canadian production also hurt profits from refining by pushing up prices for heavier grades of crude.
The S&P 500 energy sector has fallen 20% in the past year. In the past month alone, shares of a range of energy companies from EOG Resources Inc. to Valero Energy Corp. have declined about 10% or more.
The drop in energy prices has pushed down pump prices in the South, with a Sam’s Club in La Marque, Texas, near Houston, offering the cheapest prices at just $1.94 a gallon, according to Patrick DeHaan, head of petroleum analysis for GasBuddy. Hundreds more stations will soon be priced under $2, he said.
Robert Holt, who owns two Finn MacCool’s Irish-style pubs in North Texas, one in Fort Worth and the other 65 miles away in the town of Ennis, said he would benefit from lower gas prices.
“My two bars are located a fair distance apart from each other, so we do a lot of shuttling back and forth,” said Mr. Holt, 64 years old. “I’ve noticed gas prices are getting cheaper and we’re very happy about it.”
Of course, not all Americans are paying cheap prices. Californians are spending the most, paying an average of $3.86 a gallon, partly due to higher fuel taxes and stricter environmental regulations. Hawaii, Nevada, Alaska, Washington and Oregon also have high gas prices.
Some analysts are skeptical the recent overall drop in prices will last. The Organization of the Petroleum Exporting Countries and allies later this month will decide whether to extend production caps currently in place, and an extension of supply cuts could spur a reversal in the energy sector, analysts say.
“It’s in the self interest of producers to support prices,” Mr. McGillian said. “These guys are going to be very wary of not agreeing to some form of cut.”