Gas prices have been on a crazy ride in recent years. There’s 2020, which was decent, 2021 brought an ascent and 2022 saw a spike due to the Ukraine crisis and inflation. Since then, crude oil prices and their outputs (gasoline, jet fuel, etc.) have moved slightly lower, though still at elevated levels, even relative to pre-pandemic periods.

The war on the horizon in major oil-producing regions threatens global oil prices and American consumers. Despite the ups and downs, gas prices have stabilized somewhat of late. However, with more recent geopolitical uncertainty out of the Middle East, all bets are off as to where gas prices could be headed this year.

Let’s dive into some bullish and bearish factors to consider.

The Middle East’s Impact on Gas Prices

The Israeli-Hamas war did not significantly impact global prices. However, escalating Middle East tensions, such as the Yemeni blockade of the Red Sea, are affecting global shipping and oil supply routes. 

The cost of a 40ft container has tripped, impacting gasoline prices. The International Energy Agency has warned about volatile gas prices in 2024, driven by escalating Middle East and Ukraine conflicts. The agency also included potential disruptions in LNG flows, particularly through the Strait of Hormuz.

Qatari LNG shipments bound for Europe have been rerouted via Cape of Good Hope due to regional tensions. Despite these challenges, high inventory levels and an improved supply outlook offer reassurance for gas markets in 2024, with global demand expected to thrive.

There Is an Oil Surplus

The Red Sea is a key route for 10% to 12% of worldwide crude exports and 14% to 15% of oil product exports. However, total global crude shipping volumes have gone unchanged despite these disruptions. 

Along with an adequate provision of supply, global oil demand growth weakened, underpinned by the Chinese economy, which grew by only 5.2% last year. The International Energy Agency foresees a cut in half of this year’s oil demand growth.

OPEC+ production cuts notwithstanding, the world’s oil deliveries are expected to step into uncharted territories, due to growth in U.S. and Canadian output. 

Falakshahi forecasts Brent prices would soar well above $80 per barrel in no time, $85 may be reached if regional conflicts get bigger.

Seasonal Cycle Comes In

It was anticipated that gas prices in 2023 would follow the seasonal trend. It would begin around $3.20 per gallon, reaching a peak of over $3.75 in the summer and falling back to roughly $3 by December. 

Forecasters predict low pump prices through December and a possible decrease in January.

Winter refining is less expensive since the formula is also less expensive. In 2024, gas prices will continuously drop from January to December if the pattern is followed. Some predict slightly lower prices due to consistent supply and demand. 

AAA projects lowered gas prices in 2024, but geopolitical problems like Russia’s invasion of Ukraine and the ongoing Israeli-Hamas conflict remain concerns.

How Are Gas Prices Calculated, and Where Are Prices Headed?

According to the U.S. Department of Energy, several elements, like the price of raw crude oil, the cost of refining and taxes, affect gas prices. The worldwide supply and demand dictate the price of crude oil, which is generally more than half the price of gas.

West Texas Intermediate crude is a benchmark that varies over time. The price of gas at the pump usually lags behind current market conditions. Thus, the price of gas ultimately reflects costs from earlier weeks or months.

While local issues can cause short-term spikes, nationwide price shifts are, to a large degree, tied to crude oil prices. Thus, betting on where gas prices are headed really comes down to playing the energy sector as a whole.

Personally, I’m of the view that gas prices are more likely than not going to decline over the next year. Supply growth out of North America should continue to offset production cuts from OPEC+ countries (which are becoming increasingly less important for overall global supply). I expect to see weaker global demand for crude oil due to downshifting global demographic trends. These factors should, in theory, lead to lower prices at the pump, though risks to this thesis certainly hold.