By Shariq Khan
In a significant downturn, U.S. gasoline futures dropped by almost 6% on Tuesday to their lowest level since December 2021, as the conclusion of the driving season dampened demand for the motor fuel amidst a broader decline in the oil market.
Gasoline futures for October deliveries settled 5.5% lower at $1.98 per gallon, marking their most substantial losses in a single session since July 2022.
The motor fuel experienced the most significant decline in the broader energy market sell-off, with the end of the summer driving season in the U.S. and ample inventories adding further pressure on gasoline, according to Rabobank strategist Joe DeLaura.
The Labor Day holiday, which falls on the first Monday of September, signifies the end of the summer driving season in the United States.
Simultaneously, oil futures tumbled by 4.4% to $70.34 a barrel on Tuesday, reaching their lowest settlement since December 2023.
The resolution of disputes that led to reduced Libyan oil output and exports has alleviated supply constraints, while weak manufacturing data from China has reignited concerns about poor demand in the top oil-importing nation.
Gasbuddy analyst Patrick De Haan indicated on social media that the sharp decline in oil prices could drive retail gasoline to its lowest point since 2021 by the end of October.
Citing the U.S. Energy Information Administration, the cost of crude oil constitutes the largest component of the gasoline cost at the pumps.
At the U.S. Gulf Coast refining hub, gasoline was trading near $2 a barrel, with technical indicators suggesting further downside ahead, as mentioned in a note by fuel distributor TACenergy.
"The driving season has concluded as energy markets kick off September trading with a substantial selloff in gasoline prices," they remarked.
Gasoline futures for immediate delivery were at their lowest premium to the next contract since June. Higher future prices serve as a signal for traders to hoard more product instead of selling at lower prices.
As of Aug. 23, U.S. gasoline stockpiles stood at 218.4 million barrels, marking a 0.5% increase from the previous year.
Analysis:
The significant drop in gasoline futures, along with a broader sell-off in the energy market, indicates a bearish sentiment. This decline can potentially lead to lower retail gasoline prices for consumers in the coming months. Factors such as the conclusion of the driving season, ample inventories, and weak demand from top oil-importing nations contribute to the downward pressure on both gasoline and oil prices. As a result, consumers may benefit from lower prices at the pump, while traders and investors may need to adjust their strategies to navigate the current market conditions.