Lost Price: US petrol prices edge lower as recession fears squash commodities rally

Petrol prices at the pump in the US are easing back from the highs reached earlier this summer as the looming threat of recession chills commodity markets.

In the country, the world’s biggest consumer of petrol, average prices at the pump have fallen 10 per cent to around $4.52 from record levels of more than $5 a gallon in mid-June, data from automotive company AAA show.

“The word that had the most impact on prices dropping was recession,” said Tom Kloza, global head of energy analysis at pricing group OPIS. “Markets have priced in a recession — maybe a mild one, but they’ve priced in a recession.”

Prices are also dipping from their peaks in European countries, although the falls have so far been shallower.

UK prices have edged around 1 per cent lower from a record high earlier this month to 188.76p a litre, according to the AA, a motoring group. Meanwhile, the EU-wide average has fallen about 4 per cent from a June high to €1.96 a litre, European Commission data show.

Wholesale fuels are traded in dollars internationally so the recent strength in the buck has meant price falls have been slower to feed through in Europe. Taxation is also a much larger part of the pump price in Europe than in the US, so price falls appear smaller in percentage terms.

The decline in retail petrol prices follows heavy falls in the broader commodity market, with raw materials from copper and iron ore to timber and wheat falling sharply in recent weeks on concerns major global economies could slow as central banks sharply raise borrowing costs to fight inflation.

Brent, the international crude benchmark, fell below $95 a barrel last week for the first time since Russia’s invasion of Ukraine in February, down by a fifth since the previous month. It regained some ground to trade around $105 a barrel on Monday.

Gasoline is produced by refining oil, so prices at the pump typically take their direction from the crude market. Benchmark wholesale gasoline prices in New York Harbor — a proxy for the global market — were trading around $3.30 a gallon on Monday, down by around a quarter since early June.

Energy companies’ refining margins have been strong globally as shutdowns during the pandemic have contributed to a tight market, while China has restricted production from independent facilities, crimping how much refined fuel they export. Refined fuel markets have been particularly hard hit in Europe as Russia was previously a big supplier of not just crude, but also diesel and other products.

Analysts say that the recent dip in petrol prices could be temporary, as western countries move to limit Russian oil sales and years of under-investment continue to hold back supply. Supply shocks may also cause a sharp reversal.

“My thesis is that this is an interlude or reprieve,” said Kloza. “It’s intermission. And this play, which is probably a tragic comedy, has at least one more act.”