Oil prices are below $100 a barrel. What does that mean for gas prices?
For the first time since the end of February, oil prices are below $100 a barrel. This could be optimistic for gas prices
Due to the conflict between Russia and Ukraine, gas prices were at their highest in almost 15 years during the first week of March.
On March 7, Brent crude oil, the world benchmark for crude oil, hit a high of $139.13, and the U.S. benchmark, West Texas Intermediate, hit a high of $130.50, according to Reuters.
Since then, oil prices have taken a drop. On Monday, Brent crude oil fell 8% to $103.68, and WTI fell 8.75% to $99.76, per CNBC.
Why did oil prices drop? Rebecca Babin, senior energy trader for CIBC Private Wealth U.S., said that the price drop was due to “a mix of geopolitical and demand factors,” according to CNBC.
- Although the countries have not yet come to an agreement, on Monday, Russia and Ukraine are set to discuss a possible ceasefire. This has caused a change in the demand of crude oil.
- “Today’s action reflects a shift in sentiment in Russia/Ukraine causing sentiment traders to sell,” said Babin, per CNBC.
- Fox News attributed the falling oil prices to the lockdown in China. China is currently having its largest outbreak, resulting in the first large-scale lockdown since early 2020.
- The shutdown in China could also reduce global energy demand, considering the country is the world’s largest importer of oil, coal and liquefied natural gas, according to Reuters.
What does this mean for gas prices? Even though the national average gas prices are at a record high, the prices have stopped going up, according to AAA.
- If this trend for oil prices continues, the national average price for regular gas could drop by around 20%, according to CNN.
What can we expect in the future? Experts are predicting that gas prices will rise again once demand recovers.
- Tom Koza, global head of energy analysis at the Oil Price Information Analysis, predicts that by this summer, the national average for gasoline prices could be up to $4.50 a gallon, reported CNN.
- Last week, President Joe Biden signed an executive order that banned imports of Russian oil. These sanctions are likely to result in another peak in gas prices.
- “Sanctions are not going to disappear anytime soon,” said Robert Yawger, vice president of energy futures at Mizuho Securities.
- Even if Russia agreed to a ceasefire and removed all troops from Ukraine, the West is likely to keep sanctions against Russia in place for some time, according to CNN.
How do oil prices affect gas prices? As stated in previous reporting, gas prices are affected by a wide range of factors, but largely influenced by oil prices.
- Crude oil prices can change due to supply and demand, inventories, seasonality and financial market considerations and expectations, and taxes, according to the American Petroleum Institute.