Wednesday, April 13, 2016

Summer gas prices may hit 12-year low

Thinking about taking a road trip this summer? The latest figures issued by the U.S. Energy Information Administration (EIA) show that gas prices will be a relative bargain.

According to the EIA’s Short-Term Energy and Summer Fuels Outlook issued April 13, U.S. drivers will pay an average of $2.04 per gallon for regular gasoline during the summer season, which runs from April through September. The expected price for summer 2016 is 59 cents per gallon lower than the average price last summer, and it would be the lowest average summer price since 2004.

Part of the reason for the decline is gasoline production, which has been higher recently. In addition, several of the severe refinery outages that caused high prices last summer, particularly on the West Coast, have been resolved or accommodated by obtaining supply from other sources.

Typically, gas prices rise near the beginning of the summer and 2016 will be no exception. Monthly average gasoline prices are expected to increase to $2.08 per gallon in June, then fall to $1.93 per gallon in September.

Although a useful benchmark, “average” prices may not reflect what a driver will actually pay. As the EIA notes, regional differences in retail gasoline prices can be significant. EIA forecasts average summer prices to range from a low of $1.80 per gallon on the Gulf Coast to $2.51 per gallon on the West Coast.

For the full-year 2016, EIA forecasts U.S. regular gasoline prices to average $1.94 per gallon.

Based on that annual average price, EIA estimates the average household will spend about $350 less on gasoline in 2016 than in 2015 and about $1,000 less than in 2014, when retail gasoline prices averaged more than $3 per gallon.

Gasoline prices have four main components: crude oil prices, wholesale margins, retail distribution costs, and taxes. Because the latter two are generally stable, movements in gasoline prices are primarily the result of changes in crude oil prices and wholesale margins. Each dollar per barrel of sustained price change in crude oil and/or gasoline wholesale margins results in a change of 2.4 cents per gallon in product prices, the EIA said in its Today in Energy brief of April 13.

Gasoline prices in the United States typically reflect changes in the Brent global oil benchmark. The Brent crude oil price is forecast to average $35 per barrel, or 83 cents per gallon, this summer. That is approximately $22 per barrel, or 50 cents per gallon, lower than last summer.

Crude oil prices are lower this year because global oil supplies have continued to exceed consumption, leading to persistently large inventory builds. EIA expects these inventory builds to persist through 2016, keeping crude oil prices below $40 per barrel.

EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the Brent crude oil price) will average 47 cents per gallon this summer, about 13 cents per gallon lower than last summer.

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Graphic provided by the U.S. Energy Information Admininstration
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