After rising to $130 a barrel and taking gas prices to a record high, oil prices slipped below $100 a barrel in Tuesday’s trading.
West Texas Intermediate (WTI) crude, the main U.S. oil product, dropped 8.24% Tuesday to around $99.50 per barrel. At one point during the trading session, WTI was off more than 10%, hitting its lowest level since mid-May.
Brent crude, the type of oil used internationally, stayed above $100 a barrel -- but not by much. It fell by 9.45%.
Why the turnaround? Isn’t the world still struggling to fill the gap caused by the loss of Russian oil? It is, but analysts say U.S. production has started to increase.
Recession fears
Patrick DeHaan, head of petroleum analysis at GasBuddy, says there’s another reason for oil’s price retreat. The market increasingly believes the U.S. is headed for a recession if it isn’t already in one.
“Recession is part of it, a big part, but we have seen refined product inventories rising in recent weeks amidst high refinery utilization rates,” DeHaan told ConsumerAffairs.
The combination of increased refining and a drop in demand before the Fourth of July weekend is sending gasoline prices lower. The national average price of regular is down 23 cents a gallon from its record high of $5.01 a gallon on June 14. It has fallen every day since then.
Below $4 a gallon?
While the price at the pump is still very high by historical standards, DeHaan says he thinks it is very possible consumers could see the average price back below $4 before long.
“I think right now it's a potential before the end of the year, barring major hurricanes,” DeHaan said. “So iffy, but I do see it right now.”
Analysts point to recent declines in gasoline demand, suggesting that the high prices are causing motorists to drive less. They previously suggested that a small increase in online ordering in the second quarter was partly due to consumers reducing their number of trips to the store.
The main driver of this year’s spike in oil prices – sanctions on Russian oil because of its war with Ukraine – appears no closer to resolution. Analysts also point to structural issues that have limited oil production. They say prices could reverse course and head higher again at any time.