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Gas prices ‘will continue declining’ for another 1-2 weeks, analyst says

GasBuddy Head of Petroleum Analysis Patrick De Haan joins Yahoo Finance Live to discuss why gas costs so much, forecasts for lowering gas prices, President Biden's proposed federal gas tax holiday, and travel trends.

Video transcript

RACHELLE AKUFFO: Well, gas prices beginning to fall this week for the first time in months. And President Biden trying to lower prices, calling for a three-month gas tax holiday. Joining us now to discuss is Patrick De Haan, GasBuddy Head of Petroleum Analysis. Good to see you, Patrick. So where are we right now in terms of the price outlook, especially since this is peak summer driving travel season?

PATRICK DE HAAN: Exactly right. As we prepare for July 4, as you mentioned, gas prices have come down about $0.10 a gallon from their peak. And the good news is they will continue declining, possibly for another week, maybe two. And we could see another $0.10 to $0.20 a gallon drop over that time frame.

Now, it could get better than that. I'm trying to be a little bit pessimistic. Oil prices inching up today again. But for now, some relief in store. Keep in mind, President Biden's talk about eliminating the federal gas tax could, if implemented, push prices down further.

DAVE BRIGGS: And that's the question, isn't it, because there are a lot of studies out there that suggest the inverse could be possible-- because you're going to increase demand, you're going to do nothing with supply. Penn Wharton, in fact, has looked at that, and it's not an optimistic view. Do you think, ultimately, in the long run, it will drive down, if the president can get congress behind him-- which, right now, he does not have the support of congress? What do you think that would do to the long-term prices, though?

PATRICK DE HAAN: Well, I certainly do remain concerned, especially going into the prime of Hurricane season in mid-August through mid-September, that if you cut prices through a federal gas tax reduction, it could incentivize Americans to boost demand, exacerbating the problem that we find ourselves in that has driven prices up so much. So that's certainly a rising risk.

And if you get a Hurricane Harvey or something like a Hurricane Ida to knock out refining capacity amidst higher demand because of a drop in the federal gas tax, that really is concerning. Having said that, it's kind of a risk, but it certainly could reduce prices temporarily. But it certainly could come back to bite if there are major hurricanes.

RACHELLE AKUFFO: And I want to ask you, because, obviously, the government trying to come up with a number of solutions, whether it's the gas tax holiday-- but also, perhaps, the option of summer grade versus winter grade gasoline-- perhaps using some of that less environmentally friendly winter grade gasoline. What do people need to know about the difference between these in terms of the cost as well as the environmental impact?

PATRICK DE HAAN: Well, the environmental impact is that you have a more volatile form of gasoline. And amidst the warmest months of the summer, that could prove a little bit troublesome-- although butane tends to be cheaper than its gasoline or benzene counterparts. So it's a cheap blending component that can reduce prices.

And it would also expand the pool of gasoline by somewhere in the ballpark of 250, maybe 400,000 barrels a day. But at this time, when we need every gallon we can get, that may provide some breathing room, especially if there are unexpected outages. Keep in mind, there's a lot of fragmentation behind all of these different summer blends of fuel. And that acts to kink the flow of gasoline.

So that could provide some relief. But as you mentioned, there are some downsides, especially considering emissions and ozone during the warmest months.

DAVE BRIGGS: Indeed. I want to mention one last note on that Penn Wharton study I mentioned-- $5 to $14. Bucks That's the grand total they estimated would save American consumers over the course of the summer. Meanwhile, it would cost the highway trust fund $6 billion. That is a tough political argument to run through congress at this point.

But I want to ask you-- when do gas prices typically peak, Patrick? Because AAA says 42 million people are expected to drive over the 4th of July holiday weekend.

PATRICK DE HAAN: Well, typically, we actually see peak prices occur before the start of the summer driving season, to coincide with the changeover-- that fragmentation that I mentioned about summer gasoline usually leads to peak prices around Memorial Day weekend. And then over the summer, those blends of summer gasoline increase and prices decrease. But this year with all the complexities, given the constraints, the headwinds, Russia's war in Ukraine, I think this summer, prices could potentially peak later in the summer, really just contingent on if we get one of those perfect storms to shut down production and drive prices up.

RACHELLE AKUFFO: And if we look at where oil prices are, obviously, a major component of what we see in gas prices, still up today, still above $100 a barrel. In terms of the correlation between what we see with the oil market potentially coming down at some points-- just how fast does that tend to trickle down to what we see at the gas station?

PATRICK DE HAAN: Well, it does take a couple of weeks. We are starting to see, as we are in this decline now, this is the fruit of the falling price of oil that we saw in the last week. Really, it started or peaked around June 9, and then we started to see some relief. So it takes a couple of weeks to really manifest into lower prices as stations sell through their pricier inventory and start passing along the lower costs.

Now, keep in mind, a lot of what we've seen this year at the pump has been upward trending prices. And that's when stations lose out. So now that we finally have maybe a positive downward slope happening, I think stations are a little bit more reluctant to pass along the decrease, because much of this year, they've been caught on the wrong side of things. But, indeed, it does appear that the downward trajectory is now accelerating.

DAVE BRIGGS: Speaking of reluctant, it seems oil execs are reluctant to help the Biden administration, given how much they have taken aim at the industry. And I'm just curious your thoughts, Patrick, on the optics of oil execs going to the White House, meeting with the Energy Secretary, while Biden skips out on the meeting and meets with wind executives. What message does that send?

PATRICK DE HAAN: Yeah, certainly mixed signals-- more clouds looming over oil and gas here. And I think the president-- a lot of-- you mentioned it's optics. A lot of the reason why we're here is optics. Policies will make an impact down the road.

It takes time for those policies to have an impact. But a lot of what we're seeing from the White House is optics-- miscommunication, missed signals. And that's why oil companies are, perhaps, reluctant to invest billions of dollars into raising production, and raising refining capacity, and returning refinery capacity online. It's hard to do that when the White House is giving you mixed signals.

RACHELLE AKUFFO: Patrick, just very quickly-- your top three tips for trying to save money at the gas station right now.

PATRICK DE HAAN: Well, I think this summer, things like driving more fuel efficiently. When gas is $2, it doesn't do a whole lot. But slowing down 10 to 15 miles an hour on the interstate today could save you the equivalent of over $0.50 a gallon. Using an app like Google, GasBuddy, or Waze, finding those lower prices, be wary of crossing state lines-- that's where you tend to see spikes or plunges in prices, and how you pay.

Sign up for a free loyalty program or use cash if there's a discount offered. There are even credit cards that you can sign up for that offer things like cash rebates.

RACHELLE AKUFFO: So be strategic, indeed. Thank you so much. Patrick De Haan there, thank you so much.