As Americans gear up for the traditional summer driving season, oil prices are falling, yet that drop has not translated to a similar decline in gas prices.
Since hitting $80 a barrel on Jan. 15, a barrel of West Texas Intermediate crude has fallen by nearly 30%, hitting $56.69 on May 5. Retail gasoline prices, meanwhile, have risen slightly.
The difference, known as the crack spread, illustrates a widening gap between oil and gasoline prices reflecting current conditions in the domestic energy market.
That difference can be attributed to a mix of early-year retooling among refiners as they switch to producing summer-blend gasoline and perform maintenance, as well as an increase in tariffs that is hitting the domestic refining and oil sector.
Many, including the White House, are counting on falling oil prices to translate into declining gasoline prices, which would partially offset the cost of wide-ranging tariffs.
Should the crack spread remain this wide or grow, then one should anticipate little relief in upcoming inflation reports.
Read more of RSM’s insights on the economy and the middle market.
On May 5, the average retail price of regular gasoline stood at $3.17. But a look at wholesale prices suggests that retail gas prices should soon fall toward $3 per gallon.
With OPEC looking to re-establish collective action inside OPEC, oil prices could very well decline further.
It is widely thought that if WTI crude falls below $55 a barrel, domestic production volumes will start to decline, which would put upward pressure on prices.
OPEC+ understands this, which is why the cartel over the weekend announced production increases, not only to corral internal producers, but also to squeeze American producers.
We often remind our clients that there is a cost to the disruption caused by trade policy. Until the veil of uncertainty is lifted and clarity on the direction of trade policy and import taxes is established, one should anticipate further distortions across commodity, energy and financial markets.
