Sliding petrol prices have offered a temporary reprieve to hard-pressed drivers, as the looming threat of recession chills commodity markets.
In the US, the world’s biggest consumer of petrol, average prices at the pump have fallen 10 per cent to around $4.52 from record levels of more than $5 a gallon in mid-June. That decline has been mirrored in other countries.
“The word that had the most impact on prices dropping was recession,” said Tom Kloza, global head of energy analysis at pricing group OPIS. “Markets have priced in a recession — maybe a mild one, but they’ve priced in a recession.”
Commodity markets from copper and iron ore to timber and wheat have fallen sharply in recent weeks as traders fret over the possibility of a protracted slowdown and the US Federal Reserve stifling growth with more aggressive rises in interest rates.
Brent, the international crude benchmark, fell below $95 a barrel last week for the first time since Russia’s invasion of Ukraine in February, down by a fifth since the previous month. It regained some ground to trade around $105 a barrel on Monday.
The drop will provide some relief for US president Joe Biden, who many voters blame for higher fuel costs. His administration has been quick to claim credit for what it says is the fastest fall in prices at the pump for over a decade.
The White House says steps it has taken to help include a record release from the country’s strategic reserves. The president was also in Saudi Arabia last week as part of a charm offensive to push Opec countries to raise production.
However, analysts say that the drop in prices could be temporary, as western countries move to limit Russian oil sales and years of under-investment continue to hold back supply. Supply shocks may also cause a sharp reversal.
Still, the fall in crude prices in recent weeks has fed through to petrol prices, which have been a key driver of inflation and sat at record levels in the US as recently as last month. Benchmark wholesale gasoline prices in New York Harbor — a proxy for the global market — were trading around $3.30 a gallon on Monday, down by around a quarter since early June.
But even with that decline, prices are still weighing heavily on motorists. Data released last week by the US Energy Information Administration suggested the cost of fuel was finally pushing drivers off the roads, with consumption slipping to its lowest level for this time of year since 1996.
“The gas price is getting lower and lower now,” said Vee, an Uber driver filling up his tank at an ExxonMobil station in New York’s Staten Island borough. “But even if the price stays like this until the end of the year it’s going to be like half of my income from last year.”
“These are extraordinary circumstances; we’ve taken very tough measures to address them right away — both for the American consumer but really for the global economy, too,” Amos Hochstein, the president’s top energy diplomat, told CBS’s Face the Nation on Sunday.
“The price at the pump has come down at the fastest rate that we have seen in over a decade. It’s not $5 anymore, it’s now $4.55. And I expect it to come down more towards $4.”
Despite the White House’s optimism, market participants warned of challenges ranging from hurricanes to Russian retaliation, any of which might be capable of pushing prices back up rapidly.
“My thesis is that this is an interlude or reprieve,” said Kloza. “It’s intermission. And this play, which is probably a tragic comedy, has at least one more act.”