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Wholesale gas futures point to drop below $4 a gallon

REAL ECONOMY BLOG | July 22, 2022

Authored by RSM US LLP

An overheating economy and hot summer weather have put the American public on edge as rising inflation has deflated domestic purchasing power.

Hot tempers and hotter thermostats may, however, find some relief during the final six weeks of summer through an easing in gasoline prices.

Wholesale gasoline futures imply that the average price per gallon of gas, which stands at $4.44, will most likely fall below $4 per gallon by the end of the summer.

Gas futures

While we do not expect this to result in any change in the Federal Reserve’s campaign to raise its policy rate—we expect a 75 basis-point hike at the July 27 meeting, reaching a range of 3.25% to 3.5%—the easing of gas prices will on the margin provide some relief around near-term inflation expectations.

Wholesale gasoline futures, which do not always provide perfect directional guidance, imply that consumers, investors and policymakers should anticipate a roughly 12% decline in domestic gasoline prices in the coming weeks.

Both the national average of retail gasoline prices, which peaked on June 13 at $5.01 per gallon, and wholesale prices, which peaked that day at $4.27 per gallon, should continue to ease as the peak of the summer driving season fades and the price of the benchmark West Texas Intermediate declines.

Those price declines should be captured inside the July and August inflation data that will be published next month.

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This article was written by Joseph Brusuelas and originally appeared on 2022-07-22.
2022 RSM US LLP. All rights reserved.

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