The national average for a gallon of gas has fallen below $4 for the first time since early March, a key psychological threshold for cash-strapped Americans even as inflation remains elevated.
Relentlessly high inflation is the nation’s most vexing economic problem, prompting months of recession talk even as job growth has soared — U.S. employers added 528,000 jobs in July — and consumer spending has remained resilient.
But lower pump prices mean there’s less drag on the broader economy, as evidenced by federal data released Wednesday that shows inflation eased in July. Though overall prices remain elevated, climbing 8.5 percent year over year, according to the Bureau of Labor Statistics, they’ve moved away from the pandemic peak of 9.1 percent recorded in June, when the U.S. fuel average topped out at $5.02. The gasoline index fell 7.7 percent in July.
For consumers and businesses — many pinched by more expensive diesel costs — it’s no small reprieve. Americans’ gasoline spending is now nearly $400 million a day lower than it was in June, according to an estimate from the fuel-tracking app GasBuddy. More than 60 percent of the nation’s fuel stations have priced regular unleaded gasoline at $4 or less, according to AAA spokesman Andrew Gross. Some areas have dipped below $3.
Gas and oil prices have fluctuated wildly on fears the Russian conflict would curtail supply and disrupt energy markets, as well as from the ensuing sanctions on Moscow and the continuing fallout from the coronavirus pandemic. Crude prices that had been hovering near $80 a barrel in January had pushed past $120 by March. Pump prices quickly followed, swelling nearly 20 percent a week after the invasion that began Feb. 24.
“We’ve never seen anything like 2022 at the pump. … We’ve seen gas prices behave in ways never witnessed before, jumping from $3 to $5 and now back to $3.99,” said Patrick De Haan, head of petroleum analysis for GasBuddy.
But oil prices have been cooling since early June, with West Texas Intermediate crude, the U.S. benchmark, now hovering around $94 per barrel. Gasoline costs are now in line with levels seen before the war.
Experts say the recent decline in crude prices stems from a series of recessionary warning signs in several large global economies. Slower economic growth crimps demand everywhere — not only in the United States and Europe but also in emerging markets, said Pavel Molchanov of the investment bank Raymond James. Because oil is a global commodity, a supply or price shock in one part of the world will reverberate everywhere.
“This is a timely reminder that oil is a global market, and price movements up or down are subject to macro trends over which governments have minimal control,” Molchanov said in an email.
Economists have been warning of a possible recession in the United States for months. Jeff Buchbinder, chief equity strategist for LPL Financial, said in a Monday note that he thinks the odds of a U.S. recession in the next year are “perhaps a coin flip or better,” despite the Labor Department’s blockbuster jobs reading last Friday. England’s central bank warned last week that Britain would enter a protracted recession by the last quarter of 2022.
The National Bureau of Economic Research has not declared the United States to be in a recession, even though economic activity has already declined for two consecutive quarters.
Still, fuel demand is already down: Measured as a four-week moving average, it stood at 8.6 million barrels a day as of July 29, according to the U.S. Energy Information Administration. That’s 8.7 percent lower than a year ago.
To offset higher gas prices, people are driving less, combining errands or postponing vacations, according to a July survey from AAA. Some respondents reported switching to a more fuel-efficient vehicle, buying an electric car or using public transportation.
Neeny Tyo, 64, says she retired as an art teacher in June because of the rising cost of everything.
She used to love her 45-minute commute from her home in Massena, N.Y., to nearby Lisbon. But when gas prices surged, she was spending $300 a month to fill her tank.
“It wasn’t even worth it to go work,” Tyo said. “I would spend $20, and it would be maybe a quarter-tank, and I’d go through that in maybe a day.”
For Mary Ann Ruiz, 71, higher fuel costs meant fewer drives around her hometown of Chino, Calif. Though prices have moderated since mid-June, when a gallon of unleaded fuel averaged $6.35, she’s still paying more than $5 a gallon.
Ruiz has been stringing errands together to lessen the sticker shock. She takes fewer leisure trips and is more likely to take a flight instead of driving.
Meanwhile, there is still a strong possibility that prices will could turn around. OPEC, the group of oil-producing nations that includes Saudi Arabia, has only minimally boosted production despite entreaties from President Biden and other world leaders to remedy supply shortfalls. The cartel expects demand for oil to be “rather weak” in Europe for much of the next year, one reason it’s being circumspect about increasing output.
Analysts also note that the main culprit behind higher gas prices — Russia’s war in Ukraine — is still in full swing, as are the Western sanctions designed to punish Moscow. J.P. Morgan has warned that in a worst-case scenario — in which Russia retaliates by shutting down its supply altogether — the price of oil could go as high as $380 per barrel, more than quadruple what it is today.