By Bryan Jung
Despite gas prices falling to their lowest levels in weeks this month, Americans likely will face another spike at the pump toward the end of 2022, due to resiliently high demand, as global oil supplies continue to fall, warned Bank of America (BofA) economists.
U.S. gasoline prices have fallen to $3.90 a gallon in the past week, after skyrocketing earlier this year, according to the latest data from the American Automobile Association (AAA) on Aug. 22.
“Drivers are now benefiting from gas prices that are $1.11 less than their peak in mid-June,” said Andrew Gross, a AAA spokesperson.
A recent study released by the bank said that the same factors that led U.S. gas prices to surge to more than $5 a gallon in June and July will soon lead to them reaching bottom, before finally spiking in the fourth quarter of 2022.
The drop in gas prices is credited for a slowdown in U.S. inflation rates in July, when the Consumer Price Index rose 8.5 percent year over year, lower than had been expected.
That put significant downward pressure on the index, which was hit with skyrocketing energy prices in the first half of 2022.
The index is a key factor when the Federal Reserve deliberates its interest rate policy decisions, and is also closely watched by investors.
“Gasoline prices should soon find a floor,” said Francisco Blach, who led the BofA commodity and derivatives team study.
“Summer dynamics may not repeat themselves exactly into year-end, but they could rhyme.”
AAA also said that oil supply and production may be at risk as hurricane season arrives in the United States.
“We need to keep an eye on the weather as hurricane season arrives. These storms can affect prices by disrupting oil production in the Gulf of Mexico and impacting large coastal refineries,” said Gross.
The BofA strategists said that inelastic gas demand means that any tightness in supply will cause prices to surge, or if crude oil prices rally.
Its analysis of consumer spending data showed that demand for gas continues to remain inelastic, since Americans are still filling up their gas tanks regardless of price, rather than driving less.
“Our price elasticity estimates suggest U.S. gasoline demand could still expand by about 0.35 million barrels a day, or 4 percent, into the fourth quarter of 2022,” they said.
“Global gasoline supply has been down 0.3 million barrels a day relative to 2019 in the past three months, a factor that could support prices in the fourth quarter.”
The BofA team also forecast that Brent crude oil would climb another 2.7 percent, to trade at $100 a barrel, by the start of the fourth quarter, and that WTI crude oil would jump another 4 percent, to $95 a barrel.
Oil benchmarks have steadily risen again, with Brent crude and WTI crude rising 4.8 percent and 5.3 percent, respectively, from last week.
Goldman Sachs made a similar prediction in early August regarding U.S. gas prices, which it predicts will likely rebound in the fourth quarter, as supply shortages push up crude prices, while global demand remains relatively strong.