U.S. gasoline prices posed to drop in coming months as oil demand weakens (NYSEARCA:XLE)

Energy stocks posted their worst week since May, with the S&P Energy Index dropping 5.4%, while U.S. crude oil plummeted nearly 9% for its biggest weekly loss since March.

Crude futures edged higher on Friday, but the gain did little to trim the weekly decline after signs that a surge toward $100/bbl oil was destroying demand.

Bullish oil market sentiment sank following weak data on U.S. gasoline consumption that showed average gasoline demand over the last four weeks fell 5% from the same period last year, combined with a larger than expected jump in inventories, although some banks such as Goldman Sachs and Barclays said the concerns are overdone.

Front-month Nymex crude (CL1:COM) for November delivery closed -8.8% to $82.79/bbl this week, and front-month December Brent crude (CO1:COM) finished -8.2% to $84.56/bbl, the largest one week net and percentage declines for both benchmarks since mid-March.

Also, front-month Nymex RBOB gasoline (XB1:COM) ended -8.6% to $2.1922/gal, its second lowest settlement value this year, and front-month Nymex ultra-low sulfur diesel (HO1:COM) closed -12.1% to $2.9008/gal, their largest one-week percentage drops since early February.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (NYSEARCA:UGA)

The four-week average of motor gasoline product supplied, considered a proxy for demand, averaged 8.3M bbl/day, down 5% Y/Y, while gasoline stocks increased by 6.5M barrels in the week, the U.S. Energy Information Administration reported on Wednesday.

The 3-2-1 crack spread, considered a proxy for refining margins, fell below $20/bbl this week for the first time in a year and a half, and the $9.63/bbl gasoline crack was the lowest since the 2020 COVID shutdowns.

J.P. Morgan analysts said higher fuel prices have led to less driving by U.S. motorists, which means that gasoline prices at the pump may drop below $3/gal in some places during the coming weeks.

The energy sector, represented by the Energy Select Sector SPDR Fund (NYSEARCA:XLE), finished the week -5.1%.

Top 5 gainers in energy and natural resources during the past 5 days: (SMLP) +40.7%, (SMR) +17.3%, (NGD) +16.4%, (UROY) +10.4%, (GNE) +8.8%.

Top 10 decliners in energy and natural resources during the past 5 days: (BPT) -31.9%, (NEP) -24%, (EVA) -22.5%, (PFIE) -21.9%, (PRT) -20.5%, (BW) -20.4%, (KLXE) -19.7%, (ACDC) -18.4%, (AES) -18.1%, (BE) -16%.

Source: Barchart.com