US retail gasoline prices are expected to be about 80¢/gal lower than last summer, with an average $3.50/gal price for regular grade gasoline, according to the US Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO).
During last summer’s driving season (April through September), gasoline prices hit an all-time high June 13 as regular unleaded gasoline pump price averaged $5.01/gal—the highest on record since the summer of 2008 when gasoline pump prices peaked in July, averaging $4.06/gal. West Texas Intermediate (WTI) crude price for same period rose to $133.37/bbl and Brent spot increased to $132.72/bbl.
EIA forecasts lower gasoline prices this summer due to lower forecasted crude prices compared with this time a year ago. Gasoline prices could rise slightly later this summer as demand increases during peak summer driving season.
During March 2023, regular unleaded gasoline prices averaged $3.42/gal, according to EIA. “We forecast retail gasoline prices will peak between $3.50/gal to $3.60/gal in June and average about $3.50/gal throughout the summer season.” West Coast PADD 5 retail prices continue to be the highest in the country, averaging $4.37/gal for regular grade gasoline in March and continuing higher in April.
In April, many refiners started the transition to produce the more expensive summer-grade gasoline as required by May 1. The US Environmental Protection Agency (EPA) mandates seasonal Reid vapor pressure (RVP) standards in the summer to “regulate the vapor pressure of gasoline sold at retail stations during the summer ozone season (June 1-Sept. 15) to reduce evaporative emissions from gasoline that contribute to ground-level ozone and diminish the effects of ozone-related health problems,” according to EPA’s website.
The transition was just one reason for the rise in retail pump prices.
Crude prices are a major component to gasoline prices, accounting for more than 57% of the cost at the pump. Other factors are refining margins (18%), distribution and marketing (12%), and taxes (13%).
EIA’s April STEO forecasts Brent spot price to average $87/bbl during Summer 2023, $20 lower than last summer when Brent averaged $107/bbl. Brent spot price for March 2023 averaged $78/bbl, while WTI spot averaged $73.28/bbl, considerably lower than last summer. Summer crude prices in 2022 reached the highest nominal prices seen since 2008. Brent averaged $122.71/bbl and WTI $114.84/bbl in June 2022.
Then vs. now
The oil and gas industry saw oil prices surge in July 2008 due in part to the rise in demand from emerging markets in China and India. Supply interruptions from Africa and the Middle East, with Libya threatening to cut oil production, scared oil markets and caused crude oil price spikes that summer. By year-end 2008, Brent and WTI prices plummeted to $39.95/bbl and $41.12/bbl, respectively, a result of the struggling global economy. Energy prices took a hit with shrinking demand and high inventory.
Higher crude prices in 2022 were the result of supply concerns following Russia’s invasion of Ukraine. Inventory was already low in part due to a storage withdrawal to meet rising economic activity following the lifting of pandemic restrictions.
Though crude prices have dropped since last summer, EIA expects prices to be higher over the next couple of months after OPEC announced a cut in production Apr. 3. OPEC members and other oil producers plan to voluntarily cut oil output by 1.16 million b/d. These cuts will take place in May and continue to end-2023.