Oil prices are tumbling toward levels not seen in months, but the question is, how quickly will Michigan drivers see relief at the pump?
Short answer: A bit here and a bit there this week through Independence Day.
Crude oil fell below $70 a barrel Wednesday, reaching its lowest level since late February, as increasing tanker traffic through the Strait of Hormuz and progress in U.S.-Iran peace talks eased supply fears. Oil prices have dropped about 40% from their wartime peak, according to Trading Economics.
“We should see gas prices falling in Michigan starting in the next day or two … and probably through July 4 should decline unless something significant happens,” Gas Buddy analyst Patrick De Haan said.
As of Wednesday, the national average price of gasoline was under $4 a gallon, at $3.92, according to AAA-The Auto Club Group. Michigan’s average was $4.18, up from $4.10 a week earlier but down from $4.64 a month ago.
But troubles at Great Lakes refineries could keep prices moderate, or even worse, he said. And oil prices aren’t the only factor that affects gas prices.
As of 1:15 p.m. EDT Wednesday, Brent crude futures were down $3.08, or 4.02%, at $73.98 a barrel and U.S. West Texas Intermediate was down $3.13, or 4.06%, to $73.95 a barrel, Reuters reported.
Brent touched a low of $73.22, its weakest since Feb. 27, the day before U.S.-Israeli strikes on Iran began.
AAA reported Monday that at 418.2 million barrels, U.S. crude oil inventories were about 6% below the five-year average for this time of year.
“After four months of being closed, the Strait is just starting to reopen and oil prices are back down to their low level. I think the market has been a little bit too optimistic,” De Haan said. “My concern is that if something happens, if the Strait suddenly closes, oil inventories are still quite low, so I don’t see the decrease in oil continuing.”
“If anything develops negatively, oil prices could go right back up,” he said. “I really don’t foresee oil prices dropping much more than where they are today.”
The U.S. Treasury Department authorized the production, delivery and sale of Iranian oil and petroleum products for 60 days, boosting expectations of a faster supply recovery. The International Energy Agency estimates the United Arab Emirates is exporting oil at nearly 85% of prewar levels, selling roughly 60 million barrels from the Persian Gulf recently.
But that doesn’t mean drivers should expect prices to go back to February levels until the fall or the winter due to summer gasoline demand and potential refinery challenges, De Haan said. Regular gas in Michigan averaged about $3 a gallon in late February before the start of the war.
“Don’t expect an overnight return to prewar prices,” he said. “Oil is not a 1:1 relationship between oil and the price of gasoline. If anyone is looking at the price of gasoline and saying ‘Well, oil is this so gas should be that,’ that’s kind of wrong.”
President Donald Trump said Wednesday he has directed the Justice Department to investigate oil companies for not passing falling crude costs on to consumers at the pump, according to Reuters. Trump called the practice “gouging” in a Truth Social post and said gasoline prices need to drop faster.
The last time gas prices underwent a major spike was in 2022, when they peaked at over $5 a gallon in Michigan, according to Gas Buddy reports. By August, pump prices had fallen by $1.
“The rate of decline that we’re seeing today in the national average is actually pretty close to the rate of decline that we saw back in 2022,” De Haan said. “It’s hard to say that oil companies are gouging when (motorists) across the country are seeing lower gas prices than they did a month ago.”
When oil prices decline, gas prices often ease down gradually, a behavior known as “rockets and feathers” — meaning prices spike quickly when oil rises but fall slowly when it drops, according to Fortune.
“From a gas station and consumer perspective, lower crude prices are generally positive and could translate into some relief at the pump, though retail gas prices usually lag behind crude movements due to refining, transportation, and local taxes,” said Hussein Nassar, who owns a Marathon gas station in Allen Park. “The key thing to watch now is whether geopolitical tensions stay contained, because any escalation could quickly push oil back up.”
mjohnson@detroitnews.com
This article originally appeared on The Detroit News: Oil prices are tumbling. When will Michigan gas prices follow?
Reporting by Myesha Johnson, The Detroit News / The Detroit News
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By Myesha Johnson, The Detroit News | USA TODAY Network
