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US petrol prices fall below $4 a gallon in sign of lower inflation

US gasoline prices have fallen below $4 a gallon for the first time since Russia’s invasion of Ukraine, as fears of an impending recession slowed rising fuel markets and dampened rampant inflation.

The average price of a gallon of gasoline dropped to $3.99 on Thursday, according to auto group AAA. That drops the price at the pump by a fifth since hitting record levels of more than $5 in mid-June, the fastest decline since the 2008 recession.

“It feels like a pretty big drop to go from a five to a four to a three,” said Patrick De Haan, chief of petroleum analysis at GasBuddy, a price tracking service. “It’s good news for the beleaguered motorists who were hit by record prices this year.”

The price drop is not limited to the US, as the jitters over an impending global economic slowdown and a corresponding slump in driving offset some of the oil market turmoil caused by the war in Ukraine. The Energy Information Administration has reported that US gasoline demand for the past four weeks has been about 6 percent lower than a year ago at 8.9 million barrels per day.

European prices have fallen 9 percent since June to €1.86 per liter ($7.32 per gallon), according to the latest data from the European Commission. In the UK, they are down 8 percent to £1.76 per liter ($8.20 per gallon), according to the RAC car group. Higher taxes in those jurisdictions, coupled with the strength of the dollar, mean the decline was more superficial than in the US.

The rapid decline in US prices has helped to cool inflation. The US consumer price index rose 8.5 percent year-on-year in July, slowing slightly on lower gasoline prices.

Line chart of US retail gasoline, regular, $/gallon showing pump prices have fallen from record highs

The US has one of the world’s highest car ownership, with about 92 percent of households having access to at least one vehicle, according to the latest census, making gasoline prices a prominent political issue. The country consumes about a fifth of the world’s oil, despite being home to just 4 percent of the world’s population.

High gasoline prices have become a political liability for US President Joe Biden, despite his limited ability to influence them. In response, the president has taken steps including releasing record volumes of crude oil from the country’s emergency stockpiles and leaning on producers to pump up more supplies.

The price of diesel, which is used in sectors such as freight transport and agriculture, has also fallen sharply. It stood at $5.08 on Thursday, according to the AAA, down 12 percent from $5.81 in June.

The price decline is a sharp reversal compared to the past few months. Pump prices quickly escalated early in the year, fueled by resurgent demand after the pandemic, as the Russian invasion of Ukraine in February shook global oil markets and accelerated the climb. Brent oil, the international oil mark, rose past $100 a barrel.

By mid-June, rising crude oil prices and the tight global market for oil refining capacity had pushed US gasoline prices to $5.02 per gallon — the highest level ever without adjusting for inflation.

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