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How Europe's energy crisis will impact U.S. gas prices

Yahoo Finance's Rick Newman discusses the outlook for oil prices as Europe prepares for a winter energy shortage.

Video Transcript

[AUDIO LOGO]

- Gas prices are down for 13 weeks in a row, the longest streak that we have seen in years. But can that trend continue? Let's bring in Yahoo Finance's Rick Newman. Rick, you've been writing about this. A little bit of a downbeat note here because you're saying that something can stand in the way of declining prices.

RICK NEWMAN: I want prices to go back down to $2.60 a gallon, but there are some things happening with regard to the war in Ukraine that suggest that's just not going to happen. Now, there is this European ban on purchases of oil from Russia that is supposed to go into effect on December 5. Europe agreed to that back in the spring, and they allowed six months for that before that went into place so oil buyers and sellers could figure out workarounds.

Now, if that does go into effect as scheduled, good estimates are that Russia will try to sell its oil someplace else, and it will find other buyers. But it could knock something like 20% of Russian oil exports out of the market just because of new inefficiencies. The market has not yet priced in that kind of a tightening of supply or what you might even call a supply shock.

So this is a bit puzzling. And what energy analysts are saying is that markets think Europe is not going to do it. They think Europe is going to find a way to get out of this deal because they're already having a problem with sky-high natural gas prices, and they're not going to risk an oil supply shock on top of that. But if this ban on European purchases of Russian oil actually happens, then come close to that December 5 deadline, we probably will see oil prices going up and perhaps shooting up. So there's not a lot of pressure downward on oil prices, but there could be upward pressure.

- Rick, our friend Patrick De Haan-- we all know him as GasBuddy-- tweets that a $2.99 gallon national average remains possible by mid-October. I'm trying to start a little Twitter beef here. So tell me why Patrick is wrong. And what is the one thing that hinges whether he's right or you're right?

RICK NEWMAN: Well, here's the one thing that would make Patrick correct-- if we have a fairly significant recession, either a global recession or a US recession or both. What that would do-- I mean, what happens during recessions is people drive less. People spend less money. People are worried. There are fewer people working.

And almost always during recessions, demand for oil products, gasoline goes down. So yeah, if we have a recession, I think Patrick might be right. We could get down to under $3. But I think what people are doing is extrapolating and looking at the trend of the past three months, which has been amazing, gas prices down by $1.30 since June, and saying, oh, if this trend continues, then that's where we will end up by the end of the year. But there are reasons to think that trend will not continue.

And by the way, there is at least one other important factor here, which is that we have lost refining capacity in the United States. And refineries that turn crude oil into gasoline, they're almost at maximum capacity, or they are actually at maximum capacity. So they can't make any more gasoline.

- So then what does this mean for the speed of the energy transition, then, Rick?

RICK NEWMAN: The energy-- I mean, what a great question. And you're going to give me the rest of the show to answer that question, right? The energy transition is not going nearly fast enough. I mean, what's happening is we've got this gap where oil and gas companies do not want to add capacity, and investors do not want to support them adding capacity because they think, oh, we're going to be transitioning over to electric vehicles, and we're going to lose money because nobody's going to be buying oil and gas in five years, where in reality, the energy transition to renewables is probably going to take 30 years or 40 years. So we are probably going to have these crunches where we don't have enough fossil fuel infrastructure from time to time, and we do not yet have the renewable power online to make up the difference.

And I think that is one of the things that we should have learned in 2020 when we saw gasoline prices go above $5 a gallon. I heard one energy analyst say we have to get used to the idea that gasoline is a premium product.

- That's an interesting takeaway there, that long road on that transition.

[LAUGHTER]

Bless you, Dave.

- I wish you guys had the camera on him to see the exact reaction he had.

RICK NEWMAN: First, I thought you must be laughing at me. And I heard that there's ragweed in the air because of the drought. Anyway--

- My timing was impeccable. I apologize, Rick.

- Perfect.

[LAUGHTER]

- A big thank you to Rick Newman there. Rick, have a wonderful weekend.

RICK NEWMAN: The weekend has begun, obviously. Bye, guys.