After a furious advance sparked by Russia’s invasion of Ukraine, oil prices are retreating quickly.
The war rages on, with little hope of relief for the Ukrainian people. For Americans, the biggest impact has been on gasoline prices, which climbed about 80 cents a gallon in just over two weeks.
But worst-case fears of a sustained 1970s-style energy crisis are starting to fade. Myriad forces are pushing oil prices lower — from new COVID lockdowns in China, which will likely reduce demand, to the possible restart of the Iran nuclear deal, which would put more Iranian crude on the market.
Oil soared 34 percent to nearly $124 a barrel from Feb. 23, the day before Russia launched its attack, to March 8. Prices have retreated since, and futures contracts for the US benchmark, known as West Texas Intermediate, closed at about $96 a barrel on Tuesday, or 5 percent above the pre-invasion price.
As we’ve seen so often in the past, gasoline takes longer to reverse a price spike than crude. But at least prices at the pump have stopped climbing, and they should begin to fall gradually, barring any unpleasant surprises.
“The drop in #gasprices should accelerate and if oil stays in double digits the national average could decline under $4/gal in the weeks ahead. Stations lost their shirt on the way up, but now margins are improving and they will start passing the discounts on to you,” Patrick De Haan, head of petroleum analysis at GasBuddy, tweeted Monday evening.
In Massachusetts, the average price for regular gasoline was $4.34 a gallon on Tuesday, down 2 cents from the March 11 record high, according to AAA. But the cost of filling the tank remains 24 percent higher than a month ago.
At times like these a lot of people grumble that gas stations are gouging consumers. And it’s true: Many retailers exploit oil market volatility by only gradually lowering pump prices even as the cost of crude falls more quickly.
Like it or not, that’s how the business works. Remember that selling gas is a relatively low-margin business. Over the past five years, gross margins averaged 27.2 cents a gallon, or 10.7 percent, according NACS, a trade group for gasoline retailers.
So when oil prices drop dramatically, gas station owners bolster their margins.
To be sure, there are gas stations that compete aggressively on price. While the state average has barely budged, cheaper gas can be found.
“I can tell you that a lower-priced retailer where I almost always buy gas has dropped its price about 25 cents already,” said Mary Maguire, director of public and government affairs at AAA Northeast. “A service station that is completely dependent on gasoline sales may hold prices higher longer than a retailer with alternate revenue sources such as a car wash or convenience store.”
It can take about six weeks for declines in crude prices to show up widely at gas stations.
But given the severity of what’s happening to Ukraine, that doesn’t seem too long.