Gas prices: ‘We could see $4 gas by end of October’ if oil market holds, analyst says

President of Lipow Oil Associates Andrew Lipow examines forecasts in U.S. gas prices, the outlook on Nord Stream 1 re-opening in Europe, and geopolitical pressures in the energy market as G7 nations seek a price cap on Russian oil.

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SEANA SMITH: Some relief at the pump-- gas prices falling 34 days in a row. The national average is now $4.50. It's the lowest level that we have seen since May. We want to bring in Andy Lipow, President of Lipow Oil Associates. Andy, certainly the trend is heading in the right direction.

I think what people want to know is how big of a drop we could potentially see this fall. What do you see on your radar?

ANDREW LIPOW: Well, I think over the next two weeks, I expect gasoline prices to fall another $0.10 to $0.15 a gallon down to $4.35. And although October is still a long ways away, if the oil market holds about where it is today, we could see $4 a gallon gas by the end of October.

RACHELLE AKUFFO: Now, Andrew, we're also seeing oil prices that are starting to tick back up, because we know that these gas prices, obviously, they started to fall off and we saw gas prices tick down. But now that we're seeing this upswing, how soon do we expect that to be reflected in prices at the pump?

ANDREW LIPOW: Well, I don't expect it to be reflected in price at the pump. We've seen a lot of volatility in the crude oil market. It was down near $90 a barrel just the other day, and it's rebounded now to about $104. But the gasoline market hasn't responded in kind as the consumers change their driving habits and we're actually seeing gasoline demand down about 5% over the last four weeks, according to the Energy Information Administration.

DAVE BRIGGS: So overseas, been conflicting reports about the Nord Stream reopening-- one report that says it will resume flows to Europe. Another hand, the "Wall Street Journal" says Europe is planning contingency plans for it not resuming. What are the implications either way?

ANDREW LIPOW: Well, if Nord Stream 1 remains down, at Nord Stream 1 was supplying about one-third of the Russian supplies into Europe, and, frankly, if it stays down, there simply aren't alternatives available to Europe right now. And in that case, I would expect that about Europe goes into a recession. And that recession is likely to spread worldwide.

On the other hand, if Nord Stream 1 does re-open and we see gas flows reestablished to previous levels, that's good news for Europe. And it would mean that Russia has backed off using energy as a weapon.

DAVE BRIGGS: What do you think does happen there? Do you think it resumes?

ANDREW LIPOW: Well, I think it is going to resume. I don't think that it's in Russia's best interest to keep the natural gas shut off for a long period of time. After all, where are they going to put the natural gas that they're producing? It may actually impact their crude oil production. And if a recession does spread on a worldwide basis, I think not only do they, of course, antagonize the European Union, but you have countries in Africa, as well as China and India, who are going to be upset about that as well.

SEANA SMITH: Andy, we hear from Treasury Secretary Janet Yellen once again today pushing for that price cap on Russian oil, something that the G7 talked about with along with the US just a few weeks ago. Talk to us just about implementing this type of policy and what that could potentially mean for prices here.

ANDREW LIPOW: Well, I think this is very difficult to implement. The theory is that as the European Union and the United States banned and sanctioned Russian oil imports, of course Russia turned to India and China to make up some of the difference. But the feeling is that China and India could not buy enough oil to displace or replace all that would be lost in sale to the European Union so that Russia would be amenable to selling at a price cap so that they could obtain some level of revenue.

On the other hand, I see it as India and China, they're benefiting from highly discounted Russian oil. That's certainly likely to continue. In fact, those two countries could continue to buy Russian oil and fill up their strategic petroleum reserves. We've also seen Saudi Arabia buy fuel oil for power generation from Russia, as well as Mongolia buying gasoline from Russia. But their supplies at deeply discounted prices.

So there's a lot of workaround that Russia could implement in order to maintain their level of revenue. And of course, you'd need Russia's buy-in to this price cap and they may simply decide, the heck with it. They're just simply not going to sell to the European Union.

RACHELLE AKUFFO: And with Russia being an OPEC-plus member, a lot of people are also looking to OPEC for some relief there. But what are they actually able to do? And what do they actually have the capacity to do, the willpower to do given the geopolitical tensions?

ANDREW LIPOW: Well, we're already seeing OPEC-plus, they've been increasing their production quotas, but they're failing to meet those production quotas by over 2 million barrels a day-- the laggards being Libya, Nigeria, Angola. So the market looks to only Saudi Arabia, the United Arab Emirates, and Kuwait as the source of making up that shortfall. And those countries have been reluctant to do so.

When we think about Saudi Arabia, in August, their production quota is 11 million barrels a day. The thought is that their capacity is 12 million barrels a day. But they've shown very little historical basis of even approaching 12 million barrels a day for a long period of time. So the market is simply concerned that that spare capacity is not going to be there.

DAVE BRIGGS: And circling back here, you talked about the next two weeks. But what are the implications of potential active hurricane season? Could we see $5 gas again?

ANDREW LIPOW: Well, I don't think we'll see $5 a gallon gasoline again. I mean, the hurricane season that's ahead of us, it is a concern. It's supposed to be forecast as very active. We've seen when hurricanes hit the New Orleans area, the Houston area, it impacts about 10% of the nation's refining capacity.

And we could get supply shortages and disruptions depending on how severe that hurricane is. But I don't think we'll see the spike on a national basis back to $5 a gallon.