2014 Gas Price Forecast: Rise & Fall

Polar vortex, strong supply, weak demand portend decline later in year after seasonal peak

Michael Green AAA

Michael Green

SAN FRANCISCO -- Gasoline prices are set to start off strong but could fall off in the latter part of the year, according to a MarketWatch report. The average price for regular gasoline in the United States declined in 2013, and analysts said that they expect another yearly decline between 2013 and 2014.

"Fundamentals for gasoline are improving for the U.S. consumer, with retail prices to gradually decline this year from 2013," Brian Milne, energy editor and product manager at Schneider Electric, an energy management firm, told the financial news source.

According to the Energy Information Administration (EIA), regular gasoline averaged $3.505 per gallon at retail in 2013, down from $3.618 in 2012. The EIA expects national averages of $3.46 per gallon for 2014 and $3.39 per gallon for 2015.

Milne explained that the main reasons for the lower prices include "less demand amid greater vehicle efficiency and a behavioral change in the U.S. consumer, and a revival in U.S. crude production, with output now at a 25-year high and still climbing.

"Higher crude output is by far the leading catalyst for the lower trend in gasoline prices," Milne said.

While the national average has fallen during much of the month of January, expect a short-term increase, said AAA spokesperson Michael Green.

"We are about to enter a period of rising gas prices as the seasonal maintenance period begins," Green told MarketWatch. While some refineries have started maintenance, most will get started in February and could last into the late spring.

"Prices are likely to rise soon as the market anticipates widespread seasonal refinery maintenance," said Green. "Drivers should expect to pay more for gas in February."

Milne predicts prices to peak in early second-quarter 2014, averaging between $3.25 and $3.75 per gallon throughout the year.

One of the most immediate contributors toward volatility in the early part of the year is the polar vortex and severe cold covering the eastern United States in January, impacting refinery production and gasoline demand.

"Many people have stayed home from work due to snow days, which means that thousands of drivers that normally would have been on the roads burning gasoline were instead at home," Green said.

According to EIA figures, motor gasoline supplied--a measure of deman--was off 0.1% during the four weeks ending Jan. 17 compared to the same period a year ago.

"It is possible that very cold temperatures could disrupt refinery operations like we saw with the polar vortex," Green told MarketWatch, referring to issues reported at more than one dozen refineries earlier in January. "But any problems should be offset by the corresponding decrease in demand."