AP Photo/Gene J. Puskar
- Wholesale gas prices will fall in coming months as oil demand keeps weakening, energy analyst Paul Sankey said.
- That's partially as Saudi Arabia's production cuts pushed oil prices too high, he told CNBC.
- It's unlikely the kingdom will cut output further, as it risks losing oil market share.
Expect lower prices at the pump in the coming months, as Saudi Arabia's production cuts sent crude prices too high, energy expert Paul Sankey told CNBC on Thursday.
Global oil markets are significantly dependent on US gasoline consumption, which has been weakening consistently per week. Fresh signs of that caused both Brent crude and West Texas Intermediate oil to sink as much as 6% on Wednesday.
"The gasoline crack has absolutely cratered, really remarkably," he said, referring to the price difference between crude and refined products. "That's telling you the Saudis pushed the oil price too high."
And while demand is slower, the supply side is expected to remain steady.
Sankey said it's unlikely that Saudi Arabia would cut production further to prop up prices. Already, the kingdom has cut output to 9 million barrels a day, and any more reductions would damage the country's market share in oil, he explained.
Meanwhile, US domestic oil production has held up, and supplies from sanctioned regimes like Iran and Venezuela are helping offset cuts elsewhere.
"All of those things haven't really been appreciated by the market, I don't think, but essentially it allows for much more oil supply from sanctioned nations," he said.
While factors,such as a recent Canadian pipeline outage or production cut decisions made by Russia could still swing oil markets in either direction, Sankey said wholesale prices will soon come in lower as demand keeps sliding.
"You will see lower prices at the pump over the coming months," he added.