Gasoline and Natural Gas Prices Finally Drop

Gasoline price relief looms.

When?

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New York (CNN Business) - 

Americans grappling with historic levels of inflation will finally see some relief where they need it most: rising energy prices, gasoline and natural gas.

After a relentless rise, prices at gas stations are falling.

The national average price of a gallon of regular gasoline fell Tuesday to a seven-week low of $ 3.35 a gallon, according to AAA.

The outlook for home heating costs this winter is also improving significantly.

Natural gas futures have almost halved in the last two months.

Natural gas slumped more than 11% on Monday, its worst day in nearly three years.

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Fears over energy prices is one of the main reasons why inflation reached its highest in 31 years.

The cooling in energy prices, if it persists, could ease inflationary pressure on the US economy and inspire confidence in discouraged consumers.

"This is going to help consumers considerably," said Robert Yawger, director of energy futures at Mizuho Securities, referring to the decline in natural gas futures.

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Prices at gas stations began to stabilize when rumors began that the Biden government would intervene in energy markets.

By the time President Joe Biden announced the largest release of the Strategic Petroleum Reserve on November 23 as part of a coordinated release with other countries, oil prices were 10% below their peak.

And that Biden's decision to turn to the Strategic Petroleum Reserve is considered more of a patch than a long-term solution.

Gasoline prices, which are lagging behind, began to decline soon after.

Yes, the prices at the gas stations are still high.

Regular gasoline now costs $ 3.35 a gallon, up from $ 2.16 a year ago.

But they have finally stopped climbing.

The White House applauds the drop in gasoline prices

After months of criticism for high inflation, and high energy prices in particular, the White House applauds the change of course.

"We consider the drop in prices at the pumps to be good news. This is due, at least in part, to the actions of the president, as we have taken bold steps to increase supply and lower prices," he said Tuesday. to CNN a person familiar with the thinking of the White House.

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Biden expressed hope last week that gasoline prices will decline.

"These savings are starting to trickle down to Americans, and they should increase in the coming weeks. And it can't happen fast enough," Biden said Friday.

Of course, US intervention in energy markets is only part of it.

The other part is more sinister: Oil prices took a heavy hit after the emergence of the omicron variant of the coronavirus sparked fears of lower demand for gasoline, jet fuel and diesel.

Crude oil had its biggest crash since April 2020 during the so-called “Black Friday”.

In recent days, oil prices have rebounded, along with the stock market, as Wall Street reacts to anecdotal evidence suggesting that the symptoms produced by the omicron variant have been mild.

Crude rose nearly 5% on Tuesday to $ 72.80 a barrel.

This is a 10% increase from Friday and suggests that the relief at the gas station could be short-lived.

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Natural gas collapses

For its part, natural gas continues to rise according to last year's levels, but has cooled considerably in recent weeks.

In early October, as fears of a European-style shortage stirred, natural gas hit $ 6.47 per million British thermal units (BTUs).

That was the highest level since February 2014.

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But that rally has been completely reversed.

Natural gas fell 11.5% on Monday, its worst day since January 2019, to $ 3.66 per million BTUs.

That's the lowest level since July 15.

Natural gas received a downward boost in part from the fact that temperatures across the United States have been warmer than usual.

That has eased demand for natural gas, the most common way to heat homes.

"The warmer-than-normal early winter has eased concerns," said Christopher Louney, vice president of global commodities strategy at RBC Capital Markets.

Exaggerated shortage fears

Warmer temperatures have also contributed to increasing natural gas inventories, reducing fears that storage levels could fall to alarmingly low levels.

"The United States is not going to run out of natural gas. There is ample supply," says Rob Thummel, portfolio manager at energy investment firm TortoiseEcofin.

"We could cope with a fairly extreme cold snap and still have an adequate supply."

Shortage fears on the natural gas front were overblown, especially considering that the United States is the largest gas producer on the planet.

And natural gas production has increased, helping to lower prices even further.

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"We are seeing the response of an efficient natural gas market at prices that were perceived as excessive," the American Gas Association, an industry union, told CNN.

Unlike Europe, the United States produces enough natural gas on its territory to be able to export significant quantities abroad every day in the form of LNG, or liquefied natural gas.

In any case, the natural gas market has gone from worrying about a shortage to worrying about an excess supply.

Futures market spreads "warn that we are approaching oversupply. It's a big problem," says Mizuho's Yawger.

Of course, it is too early to sound the alarm signal on the home heating front.

Winter has not even officially started and the very cold temperatures of the coming weeks and months could trigger a rebound in natural gas futures.

But for now, the energy market offers a glimmer of hope to inflation-weary American families.

Gasoline prices rise