Gas Prices Won't Drop Much Lower By Election Day, Says Rebecca Babin

CIBC’s senior energy trader Rebecca Babin expects gas prices to stay elevated into election day, with pump prices likely higher than the White House wants for the November midterms. She links the firmer oil tone to renewed tensions around the Strait of Hormuz, while noting China’s positioning in the oil market is restraining a move higher toward $100/bbl.

Analysis

The immediate market read-through is less about a durable demand shock and more about political time decay: pump-price relief tends to show up too slowly to help the vote, which raises the odds of symbolic policy action rather than a true regime change in crude. That matters because policy headlines usually hit prompt barrels first; if Washington signals comfort with lower prices, upstream equities and crude-linked ETFs can underperform even if the underlying fundamental story never fully breaks.

The bigger second-order effect is that China appears to be setting the ceiling on the rally. That shifts the tape from "geopolitical breakout" to "headline premium on top of a soft demand backdrop," which usually means spikes fade unless inventory draws tighten or shipping disruption becomes physical. In that regime, airlines, trucking, and consumer-exposed names get a cleaner margin tailwind than E&Ps get upside, while oil services lag because their multiple is driven by sustained capex, not one-off volatility.

Contrarian risk: consensus is overpricing the odds that Hormuz alone can carry crude to a lasting $100 handle. The more likely path is a capped range with intermittent squeezes that invite selling, especially if Chinese import data stays weak or the U.S. uses SPR/diplomatic pressure to blunt price pressure before November. The thesis breaks if Brent holds a high-$80s/low-$90s range for several weeks on real physical tightness, not just rhetoric.

Key Decisions for Investors

• Short XLE or buy 4-8 week XLE put spreads into the election window; this is a capped-upside / sticky-downside setup if crude remains range-bound. Falsifier: Brent sustains above the low-$90s for multiple sessions with rising physical differentials.
• Pair trade: long DAL or JETS versus short XLE for a 1-2 month horizon. Lower fuel is a cleaner earnings lever for transport than it is a growth lever for energy producers; risk is a genuine supply shock or a broad travel demand miss.
• Do not chase long USO on geopolitical spikes unless there is confirmation of inventory draws or actual shipping disruption. Treat rallies as sellable if they occur on headlines without follow-through in time spreads.
• If an SPR release or Gulf diplomatic de-escalation headline emerges, rotate selectively into refiners only if crack spreads remain firm; otherwise the better trade is to fade prompt crude rather than buy downstream beta.