GasBuddy Head of Petroleum Analysis Patrick De Haan joins Yahoo Finance Live to discuss the outlook for gasoline prices as well as gas production as the U.S. shifts to more electric vehicles.
BRIAN SOZZI: You won't need reminding that skyrocketing gas prices have broken records this year. But costs at the pump have been gradually coming down since the national average peaked at around $5.00 a gallon in mid-June. Let's bring in Patrick de Haan, GasBuddy head of petroleum analysis. Patrick, always great to get some time with you. So how much more downside should consumers expect over the next month?
PATRICK DE HAAN: Well, Brian, I think barring hurricanes or unexpected outages-- we've seen a few of those here in the last couple of weeks-- the national average could decline to $3.29, then $3.25. And it's not impossible that we could be on the road to a $2.99 national average by the end of the year. Of course, there's a lot subject to change. But if markets froze today, we would get really close to that number.
JULIE HYMAN: Patrick, it's Julie here. What's the floor, do you think, for gasoline prices here?
PATRICK DE HAAN: Well, Julie, I think the floor is probably somewhere around that $3.00 a gallon mark. Now, obviously, it could be a long winter, much could change ahead of the winter given Russia's games with energy, especially natural gas in Europe.
Keep in mind, that oil certainly can be used as a replacement for some of that natural gas, especially diesel and distillates, the heavier fuels. That could pull gasoline prices higher this winter in a worst-case scenario. But I do think we still go down from here. In fact, we're just about a week away from switching back from summer gasoline over to the cheaper winter gasoline. And with it, another break at the pump.
So motorists finally starting to see some relief. By the way, we've now eclipsed COVID decline, in terms of the amount of consecutive weeks. We're at 12 straight weeks of decline. And that could continue and soon outpace a 13-week decline that we saw in 2018.
BRIAN SOZZI: Patrick, help break this down for us out there. So the gas by me where I'm at, average unleaded regular, $3.79 is what I last saw. But the premium blends are still around $5.00, if not more. Why is that differential still in place?
PATRICK DE HAAN: Well, in fact that gray gap, as I call it, has been widening over time. And that's because the higher octane components of gasoline, alkylate, has gotten more expensive. Those components, just like everything out of COVID, have seen imbalances. And there's been a lack of alkylate capacity to bring up those octane ratings.
So as you're experiencing there, most Americans now are seeing a gap, $0.80 to $1.00 a gallon-- $0.80 to $1.00 a gallon difference between regular and premium. And that gap may continue to be elevated. But as we go down, so too will the price of that premium fuel.
JULIE HYMAN: You alluded to it in passing here, Patrick, the tightness in refining capacity here in the US. And I know that there's been some talk about building out some of that capacity. Where do we stand on that? It doesn't seem like anything in the short term is going to change, is it?
PATRICK DE HAAN: Yeah, I would say you're spot on there. In fact, in the long term, too, that's where politics come into play here. And obviously, the White House a little bit less friendly-- that may be an understatement-- to the fossil fuel sector, having wanted to push us over to EVs.
So really no oil companies are likely to further spend on refining capacity given the climate that we're going to likely progress away from that kind of infrastructure. Now, having said, that there are some refinery expansions in the US that already have been underway. Those will likely get online here in the next 6 to 12 months. They'll boost our capacity a bit, but really, the only thing that's going to fix the refining capacity situation is falling demand. And I think that is now kind of the trend moving forward is that demand should ease in the months and years ahead.
The other good news is that there are major refining projects overseas in the Middle East and Asia that could help supplement the small increases in refining capacity coming in the US. But keep in mind, China has not been exporting products from its refineries, opting instead to basically shut them down. So that's certainly a pinch point.
BRIAN SOZZI: Patrick, you mentioned EVs, and not a day goes by here that we don't mention EVs. Tesla, I think came out with some new EVs this morning. As we transition to EVs, what happens to gas prices? Do they just flat out plunge?
PATRICK DE HAAN: I wouldn't say flat out plunge. I think oil companies-- we've seen the writing on the wall already, right? That demand is going to drop in the next 5, 10, 15 years. The question is the pace of decline. And as prices decline, I'm sure there will be less interest in oil companies to increase production.
So having said that, as more people shift to EVs, demand for gasoline will taper off. That will help lower prices in the interim. But that will also mean, oil companies are not spending R&D and exploration, and increase in capacity. So as you see a decline in demand, there will likely will be steps that lower capacity as well.