Crude oil prices are down. Here's what it could mean for gas prices at the pump.
Crude oil prices have taken a tumble this week, spurred by fears of a looming recession that could tamper demand.
The U.S. benchmark crude oil is trading below $100 for the first time since May, which should allow for some relief at the pump. Patrick De Haan, head of petroleum analysis at GasBuddy, believes the national average price for regular gas could fall 25 to 50 cents per gallon in the coming weeks.
“It’s going to translate into an extension of the decline we’ve already seen” over the past three weeks, De Haan said. “Another week of the decline is coming, and potentially even more declines beyond that.”
Why are oil prices down today?
The price of West Texas Intermediate crude, the U.S. benchmark, dropped 8% Tuesday to $99.50 per barrel and settled at $98.53 Wednesday. That’s down from March 8's closing price of $123.70 per gallon.
Brent Crude, the world benchmark, dipped below $100 per barrel for the first time since April before settling at $100.69 Wednesday.
Analysts say fears of a recession, which could crimp demand for oil and gas, have brought on the price drop.
“There’s a lot of evidence that a recession induces lower consumption,” De Haan told USA TODAY.
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How far will gas prices go down?
The average price per gallon for regular gas in the U.S. on Wednesday was $4.78, down from the record $5.02 last month, according to AAA.
De Haan said prices could drop 1 or 2 cents per gallon “every couple days or so” for the next few weeks. Tom Kloza, chief global analyst for the Oil Price Information Service, said prices could dip about 10 cents per gallon in the short term.
But Kloza believes the price dip will be short-lived, with most of the drops across the country taking place within the first half of the month.
“I would say write these numbers down in pencil, not pen," he said. "All my instincts suggest that updrafts will return, and nationally we have not yet seen the peak."
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Will gas prices go back up?
A number of factors could cause gas prices to skyrocket again.
Positive economic data could quell recession concerns. A major hurricane could cause refineries to shut down. There could be additional geopolitical challenges from Ukraine.
“Nobody knows what the future holds,” De Haan said. “I’m still worried about supply disruptions.”
J.P. Morgan laid out a worst-case scenario for gas prices in a July 1 report, noting that a “stratospheric” Brent oil price of $380 per barrel is possible if Russia cuts its oil exports.
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Do oil prices go down in a recession?
There are “tentative” signs of slowing in the U.S. economy, according to James Knightley, chief international economist at European bank ING. He pointed to a dip in consumer confidence and corporations being slower to fill job vacancies.
“There are some clear signs that the best of the growth story has passed,” he said. “The markets are getting much more concerned about this.”
Knightley added that a recession is not inevitable. If there is one on the horizon, it is unlikely to be “anywhere near” as bad as the Great Recession of 2008 thanks to a strong jobs market, he said. But even a mild recession would squeeze spending power.
“People are going to have to tighten their belts,” Knightley said.
De Haan believes it is “pretty likely” the U.S. will split into a recession, but notes that it may not all be bad news.
"It may allow commodities prices (to fall), it may allow us to take a breath at a time when things have been just running rampant,” he said.
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This article originally appeared on USA TODAY: Why are oil prices down? How recession fears are affecting gas prices
