Gasoline Burning Up

As we noted in today’s Chart of the Day, inflation data has been moderating and so too have gas prices as demand has pulled back and refinery output rises as we discussed in last night’s Closer.  Roughly two weeks ago, AAA’s national average price for a gallon of regular gasoline peaked just above $5. Granted it is still elevated, but that price has fallen to $4.86 today.  Taking one step further up the supply chain, Gasoline futures peaked even further ago on June 9th and have fallen 14.5% since then.  As shown in the second chart below, that decline is now putting the past several month’s uptrend on the ropes.

Gas Prices

While both the national average and gasoline futures have been rolling over, the decline in the latter has been far larger as those prices tend to slightly lead retail prices.  As for the size of that disconnect, taking the spread of the one-month percent change of the two measures of gasoline is historically wide at 14.4 percentage points.  The last times such a divergence has been observed were earlier this spring, last fall, and back in 2020.  In those periods, such divergences were short-lived. As shown in the bottom chart where we overall the AAA national average and Front Month Gasoline futures, moves in the futures market tend to lead prices at the pump, in other words, it is unlikely retail prices will continue to fly in the face of lower futures prices. Click here to learn more about Bespoke’s premium stock market research service.

AAA National Gas prices

Gasoline Prices

Six-Month Winning Streaks for Oil

Coming out of Memorial Day weekend, WTI crude oil closed out May with its sixth straight monthly gain, resulting in the second-longest streak going back to 1983. Everyone with a car has dealt with rising costs at the pump, and the AAA national average price per gallon is currently $4.67, the highest level on record. This comes as the Biden administration has halted the importation of Russian oil, and the European Union attempts to reduce its energy dependence on Russia as well. At the same time, the reopening has caused a pick-up in demand, and the gross imbalance of supply and demand has pushed up prices to nearly unprecedented levels.

Oil win streak

Since the US government stopped price controls on US crude oil in the early 1980s, there have only been six other periods where WTI prices rose for five or more consecutive months. As you can see from the chart below, half of these occurrences were shortly after the Global Financial Crisis, as prices rebounded from the sharp downturn in prices during the financial collapse, and the most recent was in early 2018.

WTI Crude Oil

Following five consecutive months of gains in oil, the average performance has been relatively weak compared to historical averages. In the first five months of each streak, oil prices have rallied by an average of 40.9% (median: 38.6%), which is nearly ten times higher than the average of all five-month periods since 1983. However, oil tends to underperform in the near term following these occurrences, registering an average loss of 3.2% and 0.8% over the next week and month, respectively. Notably, this was the only occurrence in which the price of oil climbed higher in both the following week and month, gaining 4.9% and 9.5% respectively. The only period in which the average performance was higher than that of all periods is three months, as oil has averaged a gain of 4.4% after a streak of five months is reached.

Future Oil Performance

The chart below summarizes the performance one year before and after a streak of five months is reached. As you can see, oil has traded most similarly to the late 2009 occurrence, in which the price of oil rose by 15.1% in the following year. Long story short, although the average performance in these time periods is relatively weak, there isn’t a clear trend in performance in one direction or the other.  Click here to become a Bespoke premium member today!

WTI Crude Oil Chart