Democrats' fragile gas price reprieve

The big picture: Future oil and gasoline prices are notoriously hard to game out, and this moment is especially heavy on wild cards. But analysts see the possibility of another price spike in the months ahead, even though markets have loosened up somewhat.

Two key risks:

• Tightening European sanctions and other efforts to cut Russia's fossil fuel exports windfall — steps that could slash production there.
• An active hurricane season could produce powerful storms that hit the Gulf Coast.

What they're saying: Energy analyst Bob McNally says the crisis spawned by Russia's invasion of Ukraine is creating perhaps the largest prolonged energy disruption risk since the 1970s.

• "To paraphrase Winston Churchill, we're not even at the end of the beginning of this energy war, this conflict, much less the beginning of the end," he said.
• "I think that's very unlike every other geopolitical crisis since the late '70s," McNally, president of Rapidan Energy Group, said in an interview.

The International Energy Agency this month reported that Russian supply has thus far remained "resilient," but it added:

• "As an EU embargo on Russian oil is set to come into full force at the end of the year, the oil market may tighten once again."

Don't sleep on weather and climate change either. The National Oceanic and Atmospheric Administration predicts this year's Atlantic hurricane season may be unusually active.

• Major storms hitting the Gulf Coast refining belt could curtail gasoline output and transport in what's already a tight fuels market.
• GasBuddy petroleum analyst Patrick De Haan says that absent disruptions, he sees national average gas prices en route back to less than $4 per gallon.
• But he adds: "If we do see a major hurricane, there could and likely will be a profound impact, especially if it's a Category 4 or 5, maybe even a Category 3 storm."
• "If we see that between New Orleans and Houston, I would say all bets are off and certainly there's a potential we go right back up to $5 [per gallon]," De Haan said in an interview.

The intrigue: Interest rate increases from the Fed are expected to slow the U.S. economy, but the overall global economic picture is mixed, while COVID policy in China — the world's second largest oil consumer — is a variable too.

• McNally said the main reason oil and gasoline prices have come down is because "the market is pricing in recession risk," and he also notes that U.S. gasoline demand has been weak and stockpiles are rising.
• "But if you look outside the U.S., demand is quite strong. Especially India, China's coming back," he said. It's possible, he adds, that until a few weeks ago traders were under-appreciating recession risk, but now they might be overstating it.
• De Haan is watching the next quarterly U.S. GDP data arriving next week, which is expected to be weak. "If there's a surprise to the upside there — that is, better than expected GDP — that could trigger another [price] rally too," De Haan said.

What we don't know: The electoral fallout of the price run-up and recent declines.

• Doug Sosnik, a former political adviser to Bill Clinton, said the effect of falling prices on Democrats can help prevent additional anger, but adds: "In the short term, I don't think you get a lot of credit politically."

The bottom line: "It's way too early to conclude we've seen the peak and it's all downhill from here for prices," said McNally.