The U.S. petroleum market is on the verge of a significant correction. My analysis of the current macroeconomic environment and historical patterns indicates that gasoline prices could fall below the psychological threshold of $3 per gallon by the midterm elections in November. We are currently witnessing a classic pullback scenario after reaching levels above $4, which historically foreshadows a move toward $2.
Factor #1: Fundamental Weakening of Demand
The key driver of the upcoming decline is a structural drop in consumption. Data from the U.S. Department of Energy shows a steady decrease in the 12-month moving average for gasoline demand. The current trend points to a move toward 8.7 million barrels per day by 2027, which would be the lowest since 2021. It is important to emphasize that this downward trend formed before the recent price spike, indicating a fundamental, rather than situational, nature of the demand decline. The price of around $3.8 per gallon we saw in early July is clearly overvalued given this slowdown.
Factor #2: Inevitable Stock Market Correction
The second, equally important argument lies in the correlation between gasoline prices and the stock market. Years of observations show that the average daily national gasoline price moves closely with the S&P 500 index relative to its 100-week moving average. I call this pattern the "common chart syndrome." Any, even moderate, decline in the stock market will trigger an automatic correction in fuel prices. Given the overbought condition of U.S. indices, such a scenario looks more than likely in the second half of the year.
Factor #3: Political Will and Historical Precedent
Political incentives cannot be dismissed either. It is highly advantageous for the presidential administration to achieve lower gas prices before the elections. This is a powerful electoral argument. Moreover, the historical market behavior pattern after reaching the $4 mark suggests a pullback to $2. Current trends—falling demand and a potential stock market correction—fit perfectly into this scenario, amplifying the self-correction effect.
My verdict: The combination of these three factors—structural demand decline, high correlation with the stock market, and political expediency—creates a strong foundation for price decreases. The U.S. gasoline market is overheated and moving toward a tipping point. The forecast of $3 per gallon by November is not just an optimistic scenario but the most likely path of events.