U.S. drivers are projected to pay an average of $2.45/gallon (gal) for regular grade gasoline this summer (April through September), according to EIA’s Short-Term Energy and Summer Fuels Outlook released yesterday. This year’s projected average summer price is down from a $3.59/gal average during summer 2014.
The lower retail price this summer reflects a significant drop in world crude oil prices from last summer. As the main input cost in the refining process, crude oil is the major driver of retail gasoline prices, and U.S. gasoline prices tend to follow prices of the international benchmark Brent crude. For summer 2015, the Brent crude oil spot price is projected to average $58/barrel (bbl), which translates to $1.38/gal for the crude oil portion of the gasoline price. This oil price is down from a summer 2014 average of $106/bbl ($2.52/gal for the crude oil portion). Brent crude oil prices fell sharply in late 2014 and early 2015 as global supply exceeded demand, contributing to relatively high increases in oil inventories.
In addition to crude oil prices, retail gasoline prices include taxes, retail distribution margins, and wholesale margins (the difference between the wholesale price of gasoline and the Brent crude oil price). Taxes and retail margins are generally stable, while wholesale margins are often more variable.
EIA projects wholesale margins during summer 2015 will be similar to both last year’s level and the previous five-summer average. However, EIA forecasts wholesale margins will decline through the summer, offsetting the effect of modestly rising crude oil prices, and contributing to a slight decline in retail prices from $2.50/gal in April and May to an average of $2.43 in September.
Forecasts of crude oil prices and wholesale margins are uncertain, and any difference in actual prices or margins from EIA’s forecast would be reflected in the retail gasoline price. Additionally, prices can vary significantly among regions. Projected average summer prices for 2015 range from a low of $2.25/gal in the Gulf Coast region to a high of $2.82/gal on the West Coast.
For 2015 as a whole, EIA projects the national regular gasoline retail price will average $2.40/gal. Based on this price forecast, the average U.S. household is expected to spend about $700 less on gasoline in 2015 compared with 2014, as annual motor fuel expenditures are on track to fall to their lowest level in 11 years.