Gas is averaging about $4.095 nationally this morning, but every strike on Kalshi’s Election Day gas board sits below that level.
The highest contract, Above $4.00, trades at just 32%.
That means Kalshi is not really debating whether gas prices fall between now and the midterms. The market is debating how far they fall.
The contract settles on AAA’s national average for regular gasoline on Election Day, not on the average price over the next two months. There are 62 days for the move to happen.
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US Gas Prices This Month at Kalshi
Here’s how the board currently looks:
Those prices imply roughly a 32% chance gas remains above $4.00, a 20% chance it finishes between $3.75 and $4.00, a 31% chance it lands between $3.50 and $3.75, and a 17% chance it falls below $3.50.
The midpoint of that distribution is around $3.77, roughly 33 cents below today’s price.
That is a meaningful decline to price in over nine weeks.
Some Of The Decline Should Happen Naturally
There is a good seasonal reason for Kalshi to expect lower prices.
Gasoline demand normally falls after Labor Day as the summer driving season ends. Refiners also begin switching from more expensive summer gasoline to cheaper winter blends during September.
We saw that effect last year. The national average fell from roughly $3.19 on September 1 to $3.08 around Election Day, a decline of about 11 cents.
Apply a similar move this year and gas would fall from $4.095 to around $3.98.
That gets you below the $4 strike, but nowhere close to the market’s implied midpoint near $3.77.
So seasonality can explain part of the board. It cannot explain all of it.
The Rest Of The Move Is A Bet On Oil
Brent crude finished August around $93 per barrel, roughly 37% higher than a year ago, while normal shipping through the Strait of Hormuz remains heavily disrupted.
That is still putting a large geopolitical premium into gasoline.
The EIA’s August outlook sees Brent averaging closer to $78 in the fourth quarter. But getting there depends in large part on energy flows through Hormuz beginning to normalize.
That is a $15 decline in crude from current levels.
Using a rough historical pass-through from crude to retail gasoline, a move of that size could eventually knock another 30 to 40 cents off the pump price. Combine that with the normal post-summer seasonal decline and gas could easily move into the mid-$3.60s.
That is basically the scenario Kalshi is pricing, but the problem is that it has not happened yet.
The 60-day US-Iran negotiating window expired on August 17 without an agreement, and oil has moved higher since. Gasoline also spent all of August above $4 nationally and ended the month around $4.10.
So the market is pricing a fairly substantial change in the underlying energy story over the next two months.
$4.00 is the Key Dividing Line
The most interesting contract may actually be the $4.00 strike because it shows how much confidence traders have in the seasonal decline.
Gas only needs to fall about 9.5 cents from today’s level to finish below $4.00.
Last year, the same September-to-Election-Day window produced an 11-cent decline without anything resembling today’s geopolitical backdrop changing.
That helps explain why Above $4.00 trades at only 32%. But the $3.75 line is a much bigger hurdle.
Gas would need to fall about 34.5 cents to get below it. That is more than three times the normal seasonal decline we saw last year.
Getting there probably requires crude to fall materially as well.
And to reach $3.50, the national average needs to lose almost 60 cents in 62 days. That is no longer a seasonal trade. It requires a significant change in the oil market.
Why the Politics Matter
Gas prices are also unusually important heading into the midterms.
With the national average above $4, voters are feeling the increase directly, and polling has consistently shown gasoline prices as one of the most visible ways households experience inflation.
That means a move from $4.10 today to something like $3.60 by Election Day would not just be an energy-market story. It could materially change the economic backdrop voters see heading into November.
The Trade
My favorite trade is Above $3.75 Yes around 52¢.
At today’s $4.095 national average, gas can fall more than 34 cents and the contract can still win. A normal seasonal decline like last year’s 11-cent move would leave prices around $3.98, comfortably above the strike.
So you do not need oil to stay at $93 or gas to remain above $4. You simply need the decline to be less dramatic than the market is currently pricing.
For gas to finish below $3.75, I think you probably need a meaningful drop in crude, most likely tied to some combination of a Hormuz reopening, lower geopolitical risk and weaker fall demand. That can absolutely happen, but at roughly even money the market is asking you to treat that scenario as almost the base case.
Above $3.50 at 83¢ is safer, but the payout is much less attractive.
The $3.75 line sits in the middle: enough cushion to absorb the normal fall decline, but still close to even money.
