Gasoline futures: Supply constraints, geopolitical risks add to cloudy outlook
The price of gasoline futures at the New York Mercantile Exchange (NYMEX) has continued its downward trajectory, trading nearly 38% below its fresh all-time high in June on heightening worries about weakening demand.
Rising risks of global recession as central banks in advanced economies have been ramping up monetary policy tightening to cool soaring inflation, expected slowing growth in China, and persistent geopolitical risks, have all capped the upside for the fuel.
A recent decision by the Organization of Petroleum Exporting Countries (OPEC) to cut its daily crude oil production by 2 million barrels starting November has added uncertainty to the gasoline futures price outlook.
OPEC’s deepest daily production cut since Covid-19 pandemic will take effect just one month before the European Union’s ban on Russian crude oil begins on 5 December, which could further reduce supply.
With various conflicting factors, what will be the gasoline futures price forecast for 2022 and beyond?
What are gasoline futures?
Gasoline accounts for the largest share of total petroleum products. Of one barrel of crude oil, about 40% to 45% is refined into gasoline while the rest is processed into other products, including diesel and jet fuel.
RBOB gasoline futures contracts are traded on the NYMEX, which is part of the Chicago Mercantile Exchange (CME) Group. A futures contract is a legal agreement to buy assets at predetermined prices but deliver and pay for them later.
RBOB stands for Reformulated Gasoline Blendstock for Oxygenate Blending which gasoline that has been reformulated to burn cleaner than regular gasoline, according to the US Environment Protection Agency (EPA). Reformulated gasoline reduces smog-forming and toxic pollutants in the air.
According to the EPA, reformulated gasoline accounts for 25% of total gasoline sold in the US.
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Gasoline futures: Historical performance
Gasoline futures fell to an all-time low of around $0.50 per gallon in March 2020, according to NASDAQ data, mirroring the drop in oil prices, as travel volumes nosedived due to Covid-19 pandemic restrictions.
Refineries intake plummeted while product stocks built up as demand collapsed forcing some refineries to close for an undetermined period, according to the International Energy Agency’s (IEA) Oil Market Report in May 2020.
Global oil demand collapsed by 8.8 million barrels per day (mb/d) in 2020, while supply fell by a record of 6.6m b/d, according to the IEA report. Refinery throughput plummeted by 7.3m b/d.
The price crawled back from the second half of 2020 as partial restrictions were eased and vaccine distribution started to rollout worldwide. By March 2021, the gasoline futures price had recovered to $2/gal, rising to a peak of $2.5/gal in October on tight supply.
Surging coal and natural gas prices due to rebounded demand as countries emerged from Covid-19 lockdowns and slow return of supply had also lifted demand for oil. In addition, Hurricane Ida forced several US refineries along the Gulf Coast to shut operation in late August 2021, reducing supplies.
According to data from Investing.com, the gasoline futures price gained about 52% over 2021 after nearly a 9% drop in 2020.
The rally continued into 2022 following Russia’s invasion of Ukraine on 24 February. On 8 March, the futures soared to a new all-time high of $3.83/gal after the US and European Union announced a ban on Russian energy imports as part of a sanctions package in response to the country’s aggression against Ukraine.
The futures crossed a fresh record of $4.3 in early June backed by the combination of robust demand, global refining capacity constraints, and high crude oil prices which soared to above $120 per barrels induced by the Russia-Ukraine war.
Crack spreads surged on reduced exports of Russian oil products as some buyers cut purchases to sanction Russia for its invasion of Ukraine. According to the US Energy Information Administration (EIA) the crack spread "represents the price difference between products and crude oil, can be used to determine the relative value of various petroleum products for refineries to produce. Crack spreads vary by product and can rise or fall depending on the time of year and on market conditions."
The crack spread was the main driver in rising retail fuel prices, according to the EIA.
The gasoline crack spread increased to an average of $1.05/gal in Q2 2022, from $0.5/gal in the same period in 2021 due to decreased refining capacity globally and in the US, combined with lower Russia’s product exports, the EIA said in its short-term outlook in July 2022.
Gasoline futures analysis
The gasoline futures price has retreated from the peak price in June, trading to below $3/gal by August as crude oil prices fell off their multi-year highs to below $90 per barrel on expectations of weakening demand amid a looming global recession.
Risks of a global recession have heightened as it has become evident that central banks in developed economies are determined to continue with hawkish interest rate hikes to tame stubbornly high inflation rates.
The uncertainties in the oil market have deepened following OPEC’s decision on 5 October to reduce production by 2m b/d to anticipate slowing demand.
The Saudi Arabia-led oil cartel revised down global oil demand growth by 0.5m b/d in its monthly report on 12 October, citing extension of China’s strict Covid-19 restrictions, economic headwinds in advanced economies in Europe and inflationary pressures in other key economies.
OPEC has now forecast global oil demand for 2022 to grow by roughly 2.6m b/d.
OPEC’s announcement briefly pushed up gasoline futures to $2.7/gal on 12 October from $2.3/gal on 23 September in line with gain in crude oil prices. International benchmark Brent gained 3.7% on 7 October at $97/bbl on the prospect of lower OPEC’s output before retreating to below $95.
Jim Patterson, managing editor at Kiplinger, a Washington DC-based publisher of business forecasts and personal finance advice, wrote on 7 October that a OPEC+ oil supply cut plan could push gasoline prices higher.
On the other hand, higher prices sparked by OPEC+ supply cuts and a deteriorating economy could adversely slow global oil demand, according to the IEA’s October oil market report. The agency forecast demand to contract by 340 kilo barrels/day year-over-year (YoY) in the fourth quarter.
Higher fuel and energy prices have been the main contributor of rising global inflation in the past months.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” IEA wrote in its report.
The agency also cut oil demand growth forecast for 2023 by 470 kb/d to 1.7m b/d.
As of 14 October, RBOB gasoline futures traded at $2.66/gal on the NYMEX, about 38% below the peak in June – despite the losses, the commodity has risen close to 7% in one year, according to figures from economic data provider TradingEconomics.
Analysts' views and predictions
With an expected drop in demand and a squeeze in supply, what are analysts and projection websites forecasting for the gasoline futures price?
TradingEconomics’ gasoline futures price forecast saw the fuel trading at $2.88/gal by the end of this quarter, rising to $3.26 in 12 months’ time, as of 14 October.
Fitch Solutions’ gasoline futures price forecast for 2022 expected the fuel to average $3.20/gal in 2022, falling to $2.90/gal in 2023 as demand continued to weaken.
Weakening expectations of 2022 economic growth as central banks continued hiking interest rates to combat inflation, changing work habits with widespread remote working options, and increased fuel efficiency, are some of the bearish factors for gasoline futures price, according to the firm.
“Although we expect prices to remain elevated compared to historical maximums over the rest of the year, the economic slowdown is set to put pressure on prices in the remainder of the year, limiting the upside potential,” it said in its gasoline futures price forecast on 22 July.
However, the firm noted that the tight global crude oil market and mounting supply-side risks will keep gasoline future prices to above its historical maximums.
In its long-term gasoline futures price predictions, Fitch Solutions expected the price to continue its downward trajectory, dropping to $2.50 in 2024, $2.40 in 2025 and $2.38 in 2026.
Algorithm-based price forecasting service WalletInvestor was bullish in its gasoline futures price forecasts while noting that it was a good long term (1-year) investment.
The algorithm-based price forecasting service expected gasoline futures to trade at $2.591/gal in December 2022, as of 14 October. The service’s gasoline futures price forecast for 2025 saw the fuel rising to $4.091 in December 2025 and $5.129 in October 2027.
Fitch Solutions, Trading Economics, and WalletInvestor did not offer gasoline futures price forecasts for 2030.
It should be noted that gasoline futures price predictions from analysts and price forecasting services can be wrong.
Forecasts should not be used in place of your own research. Always conduct your own due diligence before investing, and never invest or trade with money you cannot afford to lose.
FAQs
Are gasoline futures a good investment?
Your investment objectives and risk tolerance should determine whether gasoline futures are a good fit for you. You should conduct your own research and never invest money that you cannot afford to lose. It is important to note that past performance does not guarantee future results. And never trade money that you cannot afford to lose.
Will Gasoline futures go up or down?
Forecasts for gasoline futures price were mixed. Fitch Solutions predicted gasoline prices to decline in the long-term to reach as low as $2.38/gal in 2026. Trading Economics and Wallet Investors expected gasoline futures price to go up. According to WalletInvestor’s algorithm-based forecast, gasoline futures price could trade as high as $5.129/gal in October 2027.
Should I invest in Gasoline futures?
The decision to invest in gasoline futures should be based on your risk tolerance, portfolio size, goals, and commodities market experience. Before investing, you should conduct your own research. Keep in mind that you should never invest or trade more than you can afford to lose
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