Gas prices rise, even as demand falls: Trader

U.S. natural gas prices fell for 70 straight days to a national average of $3.89 a gallon, according to AAA.

But consumers shouldn’t be discouraged into thinking this streak will last until the end of the year. And one energy trader says prices at the pump are being set higher again – especially in the fall and winter months.

Rebecca Babin, senior energy trader at CIBC Private Wealth, said in an interview on Yahoo Finance Live that two things will put upward pressure on natural gas prices: inventories and sanctions.

“Even if demand falls [for gasoline], the supply will go down with him, and I don’t see a significant retreat,” Babin said. “If anything, I think the national average gas prices will probably go up from here.”

First, Babin notes that the Biden administration’s release of oil stocks from the Strategic Petroleum Reserve is set to be completed in November. Second, Europe is set to increase sanctions on Russia in December. Both could reduce oil supply, pushing prices higher and ripple through to gasoline.

U.S. natural gas prices have moderated from spring to June, but some experts expect a rebound in the winter months. REUTERS/Lucy Nicholson

All of this will coincide with the era of heating oil in North America. In addition to seasonal demand for the fuel, it is more profitable for refiners to produce than gasoline, Babin said, so they will be more inclined to make crude into heating oil.

The recent drop in gasoline prices has boosted consumer confidence, although the correlation with consumer spending has been less clear. And yet, retail gasoline remains 23 percent higher than this time last year.

The underlying WTI crude oil is recovering from last week’s lows of around $86.50, after a two-month slide that coincided with a rally in equity prices. The rise was further boosted on Tuesday by comments from Saudi Arabia’s oil minister Prince Abdulaziz bin Salman that indicated the oil-rich country would be willing to cut output to support prices.

“Saudi Arabia was sending a little reminder to both the markets and the United States that they are the central banker of crude and that they can make decisions that move the market,” Babin said. Babin noted that those comments also reassured oil traders that a possible Iran nuclear deal would lead to more oil on the market and lower prices.

Babin is not alone in her view that crude oil prices will rise by the end of the year. The consensus among analysts polled by Bloomberg is that oil will close the fourth quarter at $100 a barrel. Truist’s Neal Dingmann told Yahoo Finance Live even before the Saudi conflict that he sees prices soaring as high as $110 a barrel early next year.

As Bloomberg Opinion columnist Javier Blas wrote after Bin Salman’s comments, $100 had a much better chance — if the House of Saud has anything to do with it: “Call it the price floor, the return of OPEC+ or , simply, line in the sand. Whatever its name, Riyadh’s intervention shows a preference to keep oil close to $100.

Julie Hyman is its co-host Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshymanand reading her other stories.

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