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Retail Price of Regular Gasoline Forecast to Average $2.25 Per Gallon This Summer

graph of summer average retail price of regular gasoline, as explained in the article text

Source: U.S. Energy Information Administration, Short-Term Energy Outlook. Note: Summer runs from April through September.

In the July edition of the Short-Term Energy Outlook (STEO), EIA forecasts that the U.S. retail price for regular gasoline will average $2.25 per gallon (gal) this summer (April through September). The forecast price for this summer is lower than the 2015 summer average of $2.63/gal, but higher than the forecast from the April 2016 Short-Term Energy and Summer Fuels Outlook. The change in the forecast since April is largely attributable to increases in crude oil prices.

EIA now forecasts Brent crude oil prices to average $46 per barrel (b) for the summer driving season, up from a projection of $35/b in the April STEO. The deviation of prices from the April forecast should be considered in the context of the uncertainty suggested by market prices for futures and options contracts in early April. Futures contract values for July 2016 delivery that were traded during the five-day period ending April 7 suggested that West Texas Intermediate (WTI) prices in July could range from $27/b to $57/b at the 95% confidence interval. Although market-implied confidence intervals are calculated using contract values for WTI crude oil, Brent values would likely be similar as the price differential between the two crude has been small in recent months. Rising unplanned global supply outages, particularly in Nigeria and Canada, have contributed to higher crude oil prices in recent months.

The $11/b increase in the average Brent price for the summer driving season relative to EIA’s April forecast of July prices translates into about a 27 cents/gal increase in the gasoline price ($11/b increase divided by the 42 gallons in a barrel). The 27 cents/gal increase in the Brent price forecast is partially offset by lower margins for both refiners and distributors, resulting in an increase of 21 cents/gal in the prce of retail gasoline from the April outlook.

For the rest of the summer, EIA expects gasoline prices to decline from $2.37/gal in June to $2.19/gal in September. Declining retail prices are expected to be driven by declining gasoline wholesale margins, which are forecast to fall from 49 cents/gal in June to 33 cents/gal in September. Wholesale margins typically decline towards the end of summer as seasonal gasoline consumption falls. Crude oil prices are expected to be relatively unchanged at around $47/b for the rest of the summer.

Principal contributor: Tim Hess

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