The U.S. automotive fuel market is on the verge of a significant correction. My analysis of the current macroeconomic environment and historical patterns indicates that gasoline prices have every chance of falling below the psychological mark of $3 per gallon by the November midterm elections. Moreover, the typical market behavior pattern after reaching the $4 level suggests a pullback to $2, and current trends are working precisely toward this scenario.
Falling Demand: The Key "Bearish" Signal
The key factor driving prices lower is the dynamics of consumption. Data shows that gasoline demand began to decline even before the recent price spike, despite the resilience of the U.S. economy. As of July 2, the average price was around $3.8 per gallon, which, in my view, is clearly inflated against the backdrop of weakening demand. The 12-month moving average of consumption of oil and liquid fuels for automobiles, according to estimates from the Department of Energy, is steadily moving toward the 8.7 million barrels per day mark by 2027. This would be the lowest level since 2021. The price spike in the first half of the year only exacerbated the situation, but the downward trend in demand was dominant even before the geopolitical tensions.
The Stock Market as a Catalyst
The second most important argument is the correlation between gasoline prices and stock market dynamics. My analysis shows that the average daily national gasoline price has moved in close tandem with the S&P 500 index relative to its 100-week moving average for about two decades. I call this pattern the "common chart syndrome." This means that even a moderate decline in stocks can drag fuel prices down with it. If the stock market pulls back, gasoline is highly likely to become cheaper in its wake, creating powerful potential for a self-correction in the second half of the year.
Historical Precedent and Political Incentives
Finally, the historical model cannot be dismissed. After reaching the $4 per gallon mark, the gasoline market traditionally shows a pullback to $2. Given that such a scenario benefits the U.S. presidential administration ahead of the elections, the political incentives for its realization are also obvious.
Expert Opinion: The current market configuration is a perfect storm for gasoline "bears." The combination of fundamental demand weakening, technical overbought conditions after the spike to $4, and high correlation with a potentially vulnerable stock market makes the scenario of prices falling to $3 and below not just likely, but practically inevitable in the medium term. Investors should closely monitor the dynamics of the S&P 500 as a leading indicator for the fuel market.