WASHINGTON -- With gasoline prices averaging about $2.28 per gallon in the middle of July, summer gasoline prices are set to reach their second-lowest average since 2005.
According to the Energy Information Administration’s (EIA) July 2017 Short-Term Energy Outlook (STEO), the retail price for regular-grade gasoline will average $2.38 per gallon for summer 2017, or April through September. While this is higher than summer 2016’s average of $2.23 per gallon, it is slightly lower than EIA first projected in its April 2017 summer STEO. Lower crude prices triggered the downward revision in the gasoline price forecast.
EIA is now projecting Brent crude prices to average $50 per barrel for the summer, off from the $54-per-barrel estimate in the April STEO. The agency points to increased drilling activity and production from U.S. oil producers, as well as Libya and Nigeria. This increased activity has offset some of the Organization of the Petroleum Exporting Countries’ (OPEC) production cuts.
The $4-per-barrel difference between EIA’s April forecast and the most recent price projection translates to about a 10-cent-per-gallon (CPG) decrease in gasoline prices. Each barrel of oil contains 42 gallons, so each dollar of change in its price equates to a 2.4-CPG change in gasoline prices. However, higher wholesale margins for refiners and distributors will partly offset the gasoline price impact, resulting in a smaller, 8-CPG decrease to retail gasoline prices.
EIA is forecasting gasoline wholesale margins—or the difference between the wholesale price of gasoline and the Brent price—to average 47 CPG this summer, about 5 CPG higher than it projected in the April STEO.
U.S. gasoline demand dropped 1.1% through the first four months of 2017 vs. the same period in 2016, which saw record demand. However, it is still 3.1% above the five-year average.
Retail gasoline prices likely hit their summer peak with April’s $2.42-per-gallon average. For the remainder of the season, EIA expects gasoline prices to continue to decrease to an average of $2.33 per gallon in September. Easing this decline in retail gasoline prices are shrinking wholesale margins, which EIA forecasts to drop from 52 CPG in June to 38 CPG in September. This would follow wholesale margins’ typical seasonal decline at summer’s end, when consumption drops.
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