Last year was anything but predictable for markets across the energy spectrum. While plenty of cross winds may dominate the past 10 months of 2023, all signs point to an abatement in the spectacular pricing updrafts that characterized 2022.
This is an off year politically, so “expensive” gasoline prices may not dominate the political discourse to the same extent that one might expect in 2024. But strategic petroleum reserve (SPR) sales, changing gasoline prices and efforts to ban fossil fuels will still be very much in the news.
Putting caution at bay and fully recognizing that prognostication in oil and gasoline beyond 30 days smacks more of witchcraft than true scholarship, here are some items to watch for in 2023:
- U.S. gasoline prices will once again command center stage and elicit laser-like political focus on the national average. 2023 has a fabric much like the “Arab Spring” years of 2011-2014, with high-priced crude. But whereas physical traders and speculators pushed gasoline into elliptical orbits versus crude benchmarks in 2022, for fear of what Russian President Vladimir Putin might do, a more temperate response is likely this year. After a provocative spring start, gasoline should once again take its rightful place as the third most profitable finished product out of refineries, with diesel and jet fuel affording much better returns.
- OPIS sees the 2023 national gasoline price averaging somewhere between $3.39-$3.43 per gallon, which is down from an aggregate level just below $3.97/gallon in 2022. Diversity will be plentiful with West Coast prices often $1/gallon or even $2/gallon above the more pedestrian national norm.
- U.S. gasoline consumption won’t approach the 9.3 million barrels per day annual numbers that were common from 2016 through 2019. A reasonable annual average is 8.7 million barrels/day or about 365 million gallons per diem. That projection takes into consideration a shallow recession and speaks to the “stickiness” of the work-from-home phenomenon.
- Politicians and economic evangelists will blare the trumpets of energy price deflation. Somewhere between the middle of the first quarter and the end of the second quarter, U.S. gas prices may be 30% or more below 2022 figures.
- Talk of diesel fuel shortages might linger through much of the first quarter, but diesel should lose some luster in the middle portion of 2023. Increased output from an expanded Exxon refinery in Beaumont. Louisiana, should combine with about 2 million barrels per day of new overseas refining to make more diesel available ahead of next winter. Most of the $5 and $6/gallon street placards will give way to a price sign that begins with a 4.
- The buzz in convenience-store mergers and acquisitions will revolve around major refiner interest in retail networks. BP has barely scratched the surface in building its North American retail network, and we suspect that Shell will have multiple purchase announcements as the multinational major looks to put perhaps 5,000 stations into its stable. Phillips 66 and Motiva are likely to step up their efforts to forge joint ventures. The common theme: Refiners want dedicated channels for their gasoline output going forward.
- Talk of global refining shortages will fade. OPIS estimates that the U.S. will add just shy of 500,000 barrels/day of refining capacity by the driving season, and the offshore additions amount to over 3 million barrels of new complex refining, with major additions in Mexico, Nigeria, Oman, Kuwait, Saudi Arabia and China. Many of these new facilities will occasionally send gasoline or diesel to coastal markets in the United States.
- Premium gasoline will continue to fetch a larger and larger “premium” to regular gas. Twenty years ago, purchases of 92-93 octane motor fuel were priced 10-15 cents per gallon above 87 octane but contemporary spreads are 70-80 cents per gallon. Don’t expect that to fade.
Tom Kloza is global head of energy analysis for OPIS, an IHS Markit company. Contact him at Tom.Kloza@ihsmarkit.com.