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The Potential Drop in U.S. Gasoline Prices as Oil Demand Weakens

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Recent market trends indicate that U.S. gasoline prices may experience a decline in the coming months. This decrease is expected due to the weakening demand for oil. In addition, energy stocks faced significant challenges, with the S&P Energy Index dropping 5.4% and U.S. crude oil experiencing its largest weekly loss since March, plummeting nearly 9%.

Market Sentiment Shift and Weak Data Impact

The sentiment in the oil market turned bearish following weak data on U.S. gasoline consumption. The average gasoline demand over the last four weeks fell 5% compared to the same period last year. This decline is combined with a larger-than-expected increase in inventories. However, some banks, including Goldman Sachs and Barclays, believe that concerns over the situation are exaggerated.

Front-month Nymex crude for November delivery closed the week down 8.8% at $82.79 per barrel, while front-month December Brent crude finished down 8.2% at $84.56 per barrel. These declines represent the largest one-week net and percentage drops for both benchmarks since mid-March.

Additionally, front-month Nymex RBOB gasoline ended the week down 8.6% at $2.1922 per gallon, the second-lowest settlement value this year. Front-month Nymex ultra-low sulfur diesel closed down 12.1% at $2.9008 per gallon, marking its largest one-week percentage drop since early February.

Impact on Gasoline Demand and Refining Margins

The four-week average of motor gasoline product supplied, which serves as a proxy for demand, averaged 8.3 million barrels per day, down 5% year-over-year. In the same week, gasoline stocks increased by 6.5 million barrels, according to the U.S. Energy Information Administration. This data implies a decline in consumer demand for gasoline.

The 3-2-1 crack spread, a measure of refining margins, fell below $20 per barrel for the first time in a year and a half. The gasoline crack, a specific measurement for gasoline refining margins, hit its lowest point since the 2020 COVID-19 shutdowns, reaching $9.63 per barrel.

Outlook for Gasoline Prices at the Pump

J.P. Morgan analysts anticipate that higher fuel prices have led to reduced driving by U.S. motorists. As a result, gasoline prices at the pump are predicted to drop below $3 per gallon in certain areas in the coming weeks.

Stock Market Trends in the Energy Sector

The Energy Select Sector SPDR Fund, represented by the ticker symbol NYSEARCA:XLE, experienced a 5.1% decline for the week.

Top Gainers in Energy and Natural Resources

  • Sunoco LP (SMLP) gained 40.7% during the past 5 days
  • Summit Midstream Partners, LP (SMR) gained 17.3% during the past 5 days
  • New Gold Inc. (NGD) gained 16.4% during the past 5 days
  • Uroyalty Corp (UROY) gained 10.4% during the past 5 days
  • Genie Energy Ltd (GNE) gained 8.8% during the past 5 days

Top Decliners in Energy and Natural Resources

  • BP Prudhoe Bay Royalty Trust (BPT) declined 31.9% during the past 5 days
  • NextEra Energy Partners, LP (NEP) declined 24% during the past 5 days
  • Enviva Partners, LP (EVA) declined 22.5% during the past 5 days
  • Profire Energy, Inc. (PFIE) declined 21.9% during the past 5 days
  • Puerto Rico Electric Power Authority (PRT) declined 20.5% during the past 5 days
  • Babcock & Wilcox Enterprises, Inc. (BW) declined 20.4% during the past 5 days
  • KLX Energy Services Holdings, Inc. (KLXE) declined 19.7% during the past 5 days
  • Arcadia Biosciences, Inc. (ACDC) declined 18.4% during the past 5 days
  • AES Corporation (AES) declined 18.1% during the past 5 days
  • Bloom Energy Corporation (BE) declined 16% during the past 5 days

Data source: Barchart.com

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