Omicron, For Better Or Worse, Is Bringing Gasoline Prices Lower

Continued strains from the pandemic are weighing on commodity prices to the point that some states are posting steep declines in the retail price for gasoline, analysts told Zenger.

Travel club AAA reported a national average retail price for a gallon of regular unleaded gasoline of $3.30, down 2 cents from one week ago and 10 cents lower than this time last month. Gasoline prices are still at multiyear highs for this time of year, though relief finally seems to be coming for consumers just in time for the holiday travel season.

Tom Kloza, the global head of energy analysis at the Oil Price Information Service, said that, discounting the state average of $4.66 per gallon in California, the national average would be closer to $3.20 per gallon.

Lower prices, however, are somewhat bittersweet given the renewed concerns about the COVID-19 pandemic. Major cities will impose new mask and vaccine mandates in January in an effort to control the spread of the highly contagious Omicron variant of the virus that causes COVID-19.

“You might even hope for $4 gallon gasoline as it will mean that we’re on the other side of COVID,” Kloza said. “There could be a very brisk rally coming in March-to-May, unless the slight demand destruction we are seeing tied to Omicron continues into the middle of the first quarter.

High prices at the pump don’t seem to be crimping demand too much. Federal data last week showed the total volume of refined petroleum products supplied to the market, a loose proxy for demand, continues to hold at or near pre-pandemic levels.

But commodity prices and broader markets are on the decline amid concerns about the pandemic. Crude oil prices, which account for the bulk of what consumers see at the pump, are a good 10 percent lower than they were at the start of November.

Patrick DeHaan, the senior petroleum analyst at GasBuddy, told Zenger that this marks the sixth week in a row where the national average has dipped lower.

“The biggest drops in retail gasoline prices have come in the Great Lakes, where Michigan, Indiana and Ohio all have several cities in the top 25 with the largest monthly declines in the nation,” he said. “On the extreme side, some stations in Michigan have fallen over 50 cents, with one station I verified having fallen 74 cents per gallon from its posted price in early November.”

If airport clearance numbers are any indication, it could be a relatively busy holiday travel season despite concerns about the Omicron variant. The U.S. Transportation Security Administration reported an average of 1.98 million passengers moving through security checkpoints for a seven-day period ending Dec. 20, compared with 885,800 on average over the same period last year. This year’s average is below pre-pandemic levels, however.

Matthew Kohlman, an associate director for refined products pricing at S&P Global Platts, said there’s still room for improvement with supply not yet matching demand, but this holiday travel season could still be a busy one.

“People are keeping busy for the holidays and gassing up their tanks to do so,” he said.

Edited by Kristen Butler and Bryan Wilkes