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Gas prices shouldn’t increase that much, industry analysts say

A big drop in demand and increasing stockpiles should keep prices stable

Photo (c) baona - Getty Images
The price of gasoline has risen over the last two weeks after states started to lift stay-at-home restrictions, but industry data suggests that prices at the pump won’t go much higher.

If you enjoy low gasoline prices where you live, there’s a good chance you’ll continue to do that for the rest of the year. While fuel demand has begun to rise, it may not be enough to cause much of an increase in prices. That’s because there were massive amounts of crude oil and refined gasoline on hand before the coronavirus (COVID-19) brought world economies to a halt.

Patrick DeHaan, head of petroleum analysis at GasBuddy, has been following the gasoline supply numbers closely. Over the weekend, he reported on Twitter that GasBuddy’s gasoline demand numbers showed a 5 percent drop from the previous Friday, when demand for fuel should have been rising.

“While gasoline demand has rebounded off lows, yesterday's U.S. demand was down 29.25 percent from a year ago,” he tweeted on Saturday.

Gas price freefall

Gasoline prices went into a freefall in late March, precisely at the time when wholesalers have traditionally charged more for fuel. In a normal year, the price rises until around Memorial Day before beginning to drift lower throughout the summer.

Not only has the coronavirus lockdown reversed that price trend, it has created huge stockpiles of both crude oil and gasoline. Industry experts say it will take a while to work through that surplus and, with about 40 million people out of work and others still limiting their activities, it might take much longer than usual.

CSP, a convenience store trade publication, reports that convenience stores have seen a huge drop in gasoline sales. It quotes Joe Petrowski -- senior adviser for Yesway, West Des Moines, Iowa, and former CEO of Cumberland Gulf Group -- who predicts that the average retailer could face a 23,000 gallon per week decline in gasoline sales in the near term.

Work-at-home trend

If the work-at-home trend takes hold, even after restrictions are lifted, it will likely depress consumer demand for gasoline even more. IHS Markit has predicted that U.S. gasoline demand could plunge by 50 percent until things start getting back to normal.

However, the gasoline futures market is telling a different story. Gasoline futures prices have tripled off their lows and appear to be going higher, even as the industry is confronted with a supply glut that should suggest falling prices.

As a result, consumers may see wide variations in gas prices in the weeks ahead, as some stations try to maintain their profit margins and make up for lost revenue. For that reason, consumers may find the lowest prices at big-box retailers that use gasoline as a loss-leader to get customers in the store. 

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