Since crude oil’s recent highs in early May, the commodity has been under steady pressure with a series of lower highs and lower lows on a short term basis. Today, the price of front-month WTI futures dropped below $43 and is now testing potential support at the low end of its range since its mid-April break out. Crude oil and equity prices have been closely correlated since earlier this year, and while correlations don’t go on forever, the fact that crude oil is stumbling is a short-term worry.
One positive impact of the swoon in crude is that gas prices have been falling fast. Since Memorial Day, the national average price of a gallon of gas has declined by 6.9%. The table to the right shows the average change in prices from Memorial Day through 7/24 for each year since 2005, and this year’s decline ranks as the second steepest decline of any summer behind only 2007’s drop of 8.3%. Normally, prices are relatively flat in the summer months, so this year’s decline is not the norm.
To show this another way, the chart below compares the year to date daily change in average prices at the pump in 2016 compared to a composite chart of all years since 2005. Normally, prices tend to rally in the early months of the year, then peak and level off around Memorial Day, before a late-year decline post-Labor Day. This year, though, rather than levelling off for the summer, prices have cratered.