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This Week in Petroleum

This Week in Petroleum

Release date: April 12, 2017  |  Next release date: April 19, 2017

Retail gasoline prices this summer are expected to be slightly higher than in 2016

The U.S. Energy Information Administration (EIA) forecasts that drivers in the United States will pay an average of $2.46 per gallon (gal) this summer for regular gasoline, according to EIA's Short-Term Energy and Summer Fuels Outlook. The forecast price for summer 2017 (which runs from April through September) is 23 cents/gal higher than the average price last summer, but is still nearly 70 cents/gal below the 2012-2016 summer average (Figure 1). The price increase this summer primarily reflects slightly higher forecast crude oil prices compared with last year. Monthly average gasoline prices are expected to increase from the March price of $2.33/gal to $2.51/gal in July, then fall to $2.43/gal in September.

For the full-year 2017, EIA forecast U.S. regular gasoline prices to average $2.39/gal. Based on this price, EIA estimates the average household would spend about $200 more on gasoline in 2017 than in 2016, when gasoline prices were the lowest since 2004, but about $400 less than in 2014, when retail gasoline prices averaged above $3/gal.

Gasoline prices have four main components: crude oil prices, wholesale margins, retail distribution costs, and taxes. Because the latter two are generally stable, movements in gasoline prices are primarily the result of changes in crude oil prices and wholesale margins. Each dollar per barrel (b) of sustained price change in crude oil and/or gasoline wholesale margins translates into a 2.4-cent-per-gallon change in product prices.

Gasoline prices in the United States tend to reflect changes in the Brent global oil benchmark. The Brent crude oil price is forecast to average $54/b ($1.29/gal) this summer, about $8/b (20 cents/gal) higher than last summer. Crude oil prices are higher this year because of the market's expectation that global crude oil balances will begin tightening this year, driven in part by the agreement made in November by the Organization of the Petroleum Exporting Countries' (OPEC) to reduce production. EIA expects tightening inventories in 2017 to slacken in 2018, keeping crude oil prices below $60/b.

Gasoline prices also have a seasonal component and typically move higher following the winter into the spring and summer, when gasoline demand is higher and gasoline specifications change from winter-grade gasoline to spring- and summer-grade gasoline. Summer-grade gasoline is more costly to manufacture. Along with increasing demand, this higher manufacturing cost is reflected in wholesale gasoline margins, which typically fall in the winter and increase during the summer months.

This summer, wholesale gasoline margins (the difference between the wholesale price of gasoline and the Brent crude oil price) will average 43 cents/gal, about 2 cents/gal lower than last summer but equal to the previous five-year summer average. EIA projects that lower margins will reduce gasoline yields slightly this summer, with gasoline production averaging about 60,000 barrels per day (b/d) below last summer. Projected motor gasoline consumption for summer 2017 averages 9.5 million b/d, a slight increase (0.3%) compared with last summer. Year-over-year increases in summer highway travel, projected to be 1.4%, down from an increase of 2.4% last summer, are partially offset by a 1.2% increase in fleet-wide fuel efficiency.

Any difference in crude oil prices or refinery margins from EIA's baseline forecast would be reflected in retail gasoline prices. The value of futures and options contracts traded during the five-day period ending April 6 continue to suggest high uncertainty in the oil price outlook. For example, EIA's forecast for the average West Texas Intermediate (WTI) price in December 2017 of $53/b should be considered in the context of NYMEX contract values for December 2017 delivery. Contracts traded during the five-day period ending April 6 suggest the market expects (WTI) prices could range from $34/b to $81/b (at the 95% confidence interval) in December 2017. Additionally, prices for gasoline and other petroleum products are particularly sensitive to unplanned refinery outages, and any sudden loss of gasoline supply from the market could cause retail prices to be higher than forecast.

Regional differences in retail gasoline prices can be significant, and EIA forecasts average summer prices to range from a low of $2.21/gal on the Gulf Coast to $2.87/gal on the West Coast. Prices on the West Coast are often the highest in the country because California requires a blend of gasoline that is relatively costly to produce and some states in the region have higher state tax rates than the national average. Gulf Coast prices are often among the lowest in the country because the region generally has low state tax rates and abundant gasoline supplies, as it is home to about half of all U.S. refining capacity.

U.S. average regular gasoline and diesel prices rise

The U.S. average regular gasoline retail price increased six cents from the previous week to $2.42 per gallon on April 10, up 36 cents from the same time last year. The Midwest price rose eight cents to $2.36 per gallon, the East Coast and Gulf Coast prices each rose seven cents to $2.37 per gallon and $2.19 per gallon, respectively, the Rocky Mountain price rose nearly four cents to $2.33 per gallon, and the West Coast price rose two cents to $2.87 per gallon.

The U.S. average diesel fuel price increased nearly three cents to $2.58 per gallon on April 10, 45 cents higher than a year ago. The Midwest and Gulf Coast prices each rose over three cents to $2.52 per gallon and $2.45 per gallon, respectively, the West Coast and Rocky Mountain prices each increased two cents to $2.86 per gallon and $2.64 per gallon, respectively, and the East Coast price increased nearly two cents to $2.62 per gallon.

Propane inventories fall

U.S. propane stocks decreased by 1.2 million barrels last week to 40.4 million barrels as of April 7, 2017, 27.3 million barrels (40.4%) lower than a year ago. Gulf Coast and East Coast inventories decreased by 1.3 million barrels and 0.3 million barrels, respectively, while Midwest inventories decreased slightly, remaining essentially unchanged. Rocky Mountain/West Coast inventories increased by 0.4 million barrels. Propylene non-fuel-use inventories represented 5.9% of total propane inventories.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.


Retail prices (dollars per gallon)

Conventional Regular Gasoline Prices Graph.On-Highway Diesel Fuel Prices Graph.
 Retail pricesChange from last
 04/10/17WeekYear
Gasoline2.4240.0640.355
Diesel2.5820.0260.454

Futures prices (dollars per gallon*)

Crude Oil Futures Price Graph.RBOB Regular Gasoline Futures Price Graph.Heating Oil Futures Price Graph.
 Futures pricesChange from last
 04/07/17WeekYear
*Note: Crude oil price in dollars per barrel.
Crude oil52.241.6412.52
Gasoline1.7460.0460.282
Heating oil1.6280.0540.428

Stocks (million barrels)

U.S. Crude Oil Stocks Graph.U.S. Distillate Stocks Graph.U.S. Gasoline Stocks Graph.U.S. Propane Stocks Graph.
 StocksChange from last
 04/07/17WeekYear
Crude oil533.4-2.228.1
Gasoline236.1-3.0-3.6
Distillate150.2-2.2-13.3
Propane40.367-1.215-27.335