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Feds Predict Stable Gas Prices This Summer

Higher consumption is being offset by a weakened economy

April 15, 2009

Motorists probably still have nightmares about last summer’s gas prices, when the cost of a fill-up could approach $100. The U.S. Energy Information Administration says things should be very different this summer.

In its Outlook for the Summer Driving Season, the agency said the increase in fuel consumption provided by the dramatic fall in petroleum prices from last year is being offset by the weak economy. These counter-balancing forces, it says, should keep prices in the reasonable range.

Consumers, however, should expect to pay slightly more than the current price.

Regular-grade gasoline retail prices are projected to average $2.23 per gallon during the summer driving season. That’s more than the $2.05 current average but a lot better than last summer’s average of $3.81 per gallon.

The monthly average gasoline price is expected to peak at about $2.30 per gallon late this summer, the EIA said. Diesel fuel prices, which averaged $4.37 per gallon last summer, are projected to average $2.27 this summer.

However, because short-term prices can be quite volatile, weekly prices will be higher or lower than the monthly average.

“In addition, if consumption turns out to be greater than projected in this Outlook, there could be increases in the monthly price averages,” the agency said.

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by the change in crude oil prices and wholesale margins.

These retail price projections reflect lower prices for the refiner's average acquisition cost of crude oil, projected to average about $52 per barrel this summer, significantly lower than the $116 per barrel average last summer.

Wholesale gasoline margins — the difference between the wholesale price of gasoline and the average cost of crude oil — are expected to be relatively unchanged from the average of 39 cents per gallon last summer. Wholesale diesel margins, on the other hand, are projected to be significantly lower this summer than last summer because of global weakness in distillate markets.

With prices depressed, motorists are likely to increase their fuel consumption over the summer, especially if the economy improves.

During the summer season, the DOE projects motor gasoline consumption to increase by 1.0 percent to 9.1 million barrels per day. Gasoline consumption last summer was low due to the high gas prices and hurricane-related distribution problems, and consumption is not expected to begin showing consistent year-over-year growth until the third quarter.

Motor gasoline is supplied by four sources: domestic crude oil refinery output, domestic production and imports of fuel ethanol for gasoline blending, primary inventories, and net imports of motor fuel and blending components.

This summer's domestic refinery gasoline supply is expected to increase by about 240,000 barrels per day from last summer's average.

Refinery production of gasoline was depressed last year as refiners maximized distillate production because of the much stronger diesel fuel market relative to gasoline. This year the diesel market is being hit the hardest by the economic downtown, and refiners are expected to lean toward more gasoline production.

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