WASHINGTON -- The Independence Day holiday, which this year is part of a three-day weekend, is one of the focal points for summer travel. Retail gasoline prices typically reach their annual peak during, or shortly before, the summer driving season, considered to run from Memorial Day weekend through Labor Day. The peak U.S. national average retail price for regular gasoline since the start of 2010, as reported in the weekly gasoline price survey from the Energy Information Administration (EIA), was $2.91 per gallon on May 10. Prices then fell for five weeks, before rising over the last two weeks to reach $2.76 per gallon as of June 28.
Current retail gasoline prices are above their year-ago level, but lower than prices during the same period in 2008, 2007 and 2006. In 2008, we recorded the highest (noninflation-adjusted) gasoline prices ever in our weekly survey, including the record price of $4.11 on July 7, 2008. That record, however, was followed by a sharp decline to $1.61 per gallon by the end of 2008, and the U.S. average price has not breached the $3-per-gallon mark since then.
The major influences on gasoline prices are crude oil prices and refinery gasoline margins (the difference between gasoline and crude oil prices on the spot or futures markets). Gasoline margins are generally responsive to the balance between gasoline supply and demand. In 2007, refinery gasoline margins were especially high during the spring, as rising gasoline demand and unusually high refinery outages strained U.S. supplies, driving up margins, and pushing gasoline prices over $3 per gallon. In the summer of 2008, high crude oil prices, reflected in a spot price for benchmark West Texas Intermediate (WTI) topping out at over $145 per barrel on July 3, drove average retail gasoline prices above $4 per gallon, despite refinery gasoline margins that were well below their 2007 level.
Crude oil prices have varied over a substantial range this year, and have been generally rising since late May, contributing to the recent upturn in gasoline prices. This summer, crude oil prices have, thus far, stayed in a range similar to 2007, while gasoline refining margins have been moderate. With gasoline demand expected to show slight growth in 2010, gasoline margins are expected to remain moderate, implying retail prices are likely to average under $3 per gallon this summer barring unexpected events.
EIA's latest Short-Term Energy Outlook (STEO) expects modest upward pressure on crude oil prices over the remainder of the year, but recognizes that a wide range of outcomes is possible. The market value of options on futures contracts for crude oil during the five days prior to release of the STEO implied that there was a 37% probability that the December 2010 WTI price would fall below $70 per barrel and a 25% probability that it would exceed $90 per barrel.
For the second week in a row, the U.S. average price for regular gasoline increased, moving up more than a penny to settle at $2.76 per gallon, $0.12 higher than last year. With the exception of the Rocky Mountains, average prices increased in all other regions of the country. The average on the East Coast went up a penny to $2.70 per gallon. The increases in the Midwest and on the Gulf Coast amounted to a bit less than two cents, taking the prices to $2.73 per gallon and $2.61 per gallon, respectively. The Rocky Mountain price slipped a half cent but remained essentially unchanged at $2.77 per gallon. The West Coast average climbed the most of any major region, moving up over two cents to $3.06 per gallon. The average in California moved up nearly three cents to $3.13 per gallon.
Despite slipping half a penny, the national average price for diesel fuel was virtually unchanged compared to last week at $2.96 per gallon but was $0.35 above the price a year ago. Regional price changes were mixed with a very small increase on the East Coast moving the average to $2.98 per gallon. The average in the Midwest dipped less than a penny to $2.93 per gallon. On the Gulf Coast, the average dropped a cent and a half to $2.89 per gallon and the Rocky Mountain price fell over two cents to $2.96 per gallon. The average on the West Coast went up about a penny to $3.10 per gallon while the average in California increased two cents to $3.15 per gallon.
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