Gasoline prices in the wholesale and futures markets crashed on Monday as more states issued stay-at-home orders, severely dampening demand for fuel.
Some spot cash prices around the U.S. were down 40% or more Monday, and futures prices for gasoline in New York Harbor lost 24% for gasoline due for delivery in April. As a result, the prices drivers pay at the pump could fall by as much as 20% in a matter of weeks and in some areas, could reach a low below $1 a gallon ultimately in select markets.
"The reason is clear. No one is driving," said Daniel Yergin, vice chairman IHS Markit. He said demand for gasoline could fall by about 50% during the coronavirus response period. About a dozen states have required residents to stay home to stop the spread of coronavirus, since California first issued its statewide order Thursday.
Wholesale spot prices for gasoline in New York Harbor on Monday fell to 31 cents per gallon, down 19 cents from Friday's level. Gasoline in the spot market in Chicago fell to 24.5 cents, down 20 cents. RBOB gasoline futures for April fell 24.5% to $0.45 per gallon.
"This is the most dire I have ever seen it for refiners," said Tom Kloza, global head of energy analysis at Oil Price Information Services.
Gasoline prices in the spot market were about $1.50 per gallon in January, Kloza said.
The market has already been crushed. Gasoline started falling with oil prices early in the year, starting with the loss of demand when China shut down its cities to fight the virus. Then prices fell even more dramatically, when OPEC failed to reach a production deal with Russia.
"It's beyond a crash," said Kloza. "It's unprecedented, but that word is being used a lot." Kloza said refiners could be forced to cut back capacity by 30%.
At the pump, consumers were still paying an average $2.12 per gallon nationally for unleaded gasoline Monday, according to AAA, but Kloza expects prices to fall sharply. The lowest prices in the U.S. could ultimately be below $1 gallon in some areas, he said.
"I expect that the national retail average for gasoline will be below $2 a gallon by April, and I believe we're on our way to $1.70 as the national average by the middle of April, and we could go lower if this continues," said Andrew Lipow, president of Lipow Oil Associates.
Lipow said he believes demand has already dropped by about 25% nationally for gasoline. "Colonial Pipeline, starting tomorrow, is reducing its shipments of gasoline by 20% and a number of refineries are reducing their production by 20%," he said. "The trend [of demand destruction] is only going to continue to grow as more states and municipalities require the consumer to stay home."
Kloza expects global oil demand to drop by 12% to 15%, at a time when the world has been adding refining capacity. The U.S. used 9.7 million barrels a day of gasoline last week, and that could fall to about 5 million barrels a day, Kloza said.
"My quick workbook on this suggests whereas last April we spent $1.1 billion a day on gasoline, I think this April we're looking at $350 million a day. We're going to be saving $20 billion on gasoline this month," he said.