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EIA posts gasoline price forecast

Published by , Editor - Hydrocarbon Engineering
Hydrocarbon Engineering,

In the July edition of the Short-Term Energy Outlook (STEO), EIA forecasts that the US retail price for regular gasoline will average US$2.25/gal. this summer (April through September). The forecast price for this summer is lower than the 2015 summer average of US$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 US$46/bbl for the summer driving season, up from a projection of US$35/bbl 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 US$27/bbl to US$57/bbl 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 US$11/bbl increase in the average Brent price for the summer driving season relative to EIA's April forecast of July prices translates into about a US$0.27/gal. increase in the gasoline price (US$11/bbl increase divided by the 42 gal. in a barrel). The US$0.27/gal. increase in the Brent price forecast is partially offset by lower margins for both refiners and distributors, resulting in an increase of US$21/gal. in the prce of retail gasoline from the April outlook.

For the rest of the summer, EIA expects gasoline prices to decline from US$2.37/gal. in June to US$2.19/gal. in September. Declining retail prices are expected to be driven by declining gasoline wholesale margins, which are forecast to fall from US$0.49/gal. in June to US$0.33/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 US$47/bbl for the rest of the summer.

Adapted from press release by Rosalie Starling

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