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Gas prices: American refineries 'are operating at 95% capacity', analyst says

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Patrick De Haan, head of petroleum analysis at GasBuddy, joins Yahoo Finance Live to break down the latest in oil markets and how it's affecting American gas prices.

Video Transcript

DAVE BRIGGS: Nationwide, gas prices have now fallen for 31 consecutive days, down from over 5 bucks a gallon in June. And yesterday, Americans saw the largest single day decline in prices since the 2008 recession. That is a welcome break for consumers. Joining us now is Patrick De Haan, head of petroleum analysis at GasBuddy. Patrick, good to see you. So how long can this continue? How low can we go?

PATRICK DE HAAN: Well, the good news is, is for at least another couple of weeks. Barring any unexpected disruptions like hurricanes or refineries or geopolitically, it is possible that the national average could eventually by maybe mid-August get under the $4 a gallon mark. So we're in the early to mid portion of this game of falling prices. The national average now nearing a $0.50 drop compared to the peak price that we saw just over a month ago. Americans in just the next 24 hours will be spending $175 million less on gasoline than just a month ago.

SEANA SMITH: Patrick, you mentioned that we could fall below $4 by the middle of August. Do you think it's going to stay there? Or should we expect it to creep higher here into the fall?

PATRICK DE HAAN: Well, what lies ahead is a little bit tricky. And of course, part of President Biden's trip to Saudi Arabia is to see about increasing oil production from Saudi Arabia and maybe OPEC. And that's really going to be tough to figure out where we'll go in the closing innings of this year. If we do avoid a hurricane season that shuts down oil production or refineries, we could see prices staying under the $4 a gallon mark heading into the final quarter of this year.

But that's the biggest question. Of course, Russia's invasion of Ukraine still continuing. And oil prices, while rather high, have come off their highs by $35 to $40 a barrel. So the biggest question is, will the situation we have today, will the economic concerns continue? Or could we see a potential improvement in the economy? A lot of where oil is today is on concerns that the economy is going to be slowing down as the Federal Reserve raises interest rates.

RACHELLE AKUFFO: So give us some context because, obviously some will argue prices of things like gasoline are not going down fast enough. How much are people saving this month, say, last month? And which are some of the states that are benefiting the most from these price drops?

PATRICK DE HAAN: Well, the Biden administration has talked about and warned gas stations about lowering prices quickly. But what we're seeing now, we're in the midst of some of the steepest declines we've seen in quite some time.

Talking about some specifics here, Sherman Texas, average prices down $0.92 a gallon in the last month. That's a pretty steep decline. Even without the president warning stations, this is what would have happened. Fort Worth down $0.82. Kenosha County, Wisconsin down $0.80 a gallon. So we're seeing big declines across many areas of the country. And that should continue as long as the price of oil remains relatively low, compared to where it is today.

DAVE BRIGGS: Yeah, and we are seeing oil prices up 2% on the day, WTI crude, 97.76, and Brent above 101. But what's driving this other than oil prices? Are we seeing yet demand destruction?

PATRICK DE HAAN: We are seeing a level of demand destruction. I wouldn't say it's significant, but it is noticeable. In addition, though, on the supply side, we have seen an improvement as refineries boost production. In fact, three out of the last four weeks, the Energy Information Administration reporting gasoline stockpiles going up, a big jump of nearly 6 million barrels just in the last week alone in terms of gasoline supply.

So we're getting improvement on the supply side. And there are worries about the demand side of the equation, which has brought us to where we are today. And it could stick as long as the fundamentals don't significantly deteriorate in the months ahead.

SEANA SMITH: Patrick, that's interesting because when we talked about refineries before, the response from a lot of those big oil companies were, hey, we are running at max capacity. We're between 95% and 100%. Did they have a little bit more wiggle room than maybe we initially thought?

PATRICK DE HAAN: Well, they don't have a whole lot of wiggle room. They're still operating at close to 95% of their capacity. So that's a tiny little bit wiggle room. I think what we're seeing is more on the demand side. In fact, the EIA last week report that implied demand plummeted to its lowest level in years for the holiday weekend. So that's normal to see demand going down. The EIA's metric is called implied demand. It really measures how quickly gasoline disappears from the supply chain.

But don't be fooled. The GasBuddy data showed a decline in gasoline demand last week at the retail level, but not anywhere close to the decline that was reported by the EIA.

RACHELLE AKUFFO: So then in terms of the difference between what we see with wholesale prices and retail prices, how-- at what point do they start to sort of trickle down to each other? What pace does that go at?

PATRICK DE HAAN: Well, it depends. Right now, we're at one of the largest and steepest declines. This is really where we are close to maxing out. That is, it's unusual to see the national average declining more than $0.03 a gallon a day. We've only seen it a handful of times. So we're kind of at that perfect dropoff where price decreases will accelerate or continue around this $0.03 a gallon a day mark.

Stations now finally have seen gas prices, wholesale prices sustaining these low levels. So they probably have more confidence in passing along the drops. But this is a trend that will likely continue that is falling gas prices for at least the next couple of weeks, like I said, barring some of those caveats mentioned before.

RACHELLE AKUFFO: Well, I guess, fill up while you can. A big thank you to Patrick de Haan. Thanks so much.