Summer Swoon At The Pump

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Since crude oil's recent highs in early May, the commodity has been under steady pressure, with a series of lower highs and lower lows on a short-term basis. Today, the price of front-month WTI futures dropped below $43, and is now testing potential support at the low end of its range since its mid-April breakout. Crude oil and equity prices have been closely correlated since earlier this year, and while correlations don't go on forever, the fact that crude oil is stumbling is a short-term worry.

One positive impact of the swoon in crude is that gas prices have been falling fast. Since Memorial Day, the national average price of a gallon of gas has declined by 6.9%. The table to the right shows the average change in prices from Memorial Day through 7/24 for each year since 2005, and this year's decline ranks as the second steepest decline of any summer behind only 2007's drop of 8.3%. Normally, prices are relatively flat in the summer months, so this year's decline is not the norm.

To show this another way, the chart below compares the year-to-date daily change in average prices at the pump in 2016 compared to a composite chart of all years since 2005. Normally, prices tend to rally in the early months of the year, then peak and level off around Memorial Day, before a late-year decline post Labor Day. This year, though, rather than levelling off for the summer, prices have cratered.