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Short-Term Energy Outlook

Release Date: August 9, 2016  |  Next Release Date: September 7, 2016  |  Full Report    |   Text Only   |   All Tables   |   All Figures

Summer Fuels Outlook

U.S. Gasoline and Diesel Fuel Prices

EIA expects the retail price of regular-grade gasoline will average $2.04/gal during the 2016 summer driving season (April through September), down from an average of $2.63/gal last summer. A summer average of $2.04/gal would mark the lowest summer average since 2004. The projected monthly average retail price of gasoline increases from $2.05/gal in April to $2.08/gal in June before falling to $1.93/gal in September. Diesel fuel retail prices are projected to average $2.11/gal this summer, down from an average of $2.74 last summer.

Daily and weekly national average prices of gasoline can differ significantly from monthly and seasonal averages. There are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 40 cents/gal or more. Unplanned refinery outages or other disruptions to supply can also increase regional product prices to above forecast levels in the short term. In addition, higher overall gasoline demand in 2015, along with changes in the U.S. vehicle fleet in response to fuel economy standards, resulted in higher prices for high-octane gasoline blending components, which contributed to the high gasoline margins for most of 2015. Although some of these higher margins were the result of isolated refinery outages in 2015, many of the same conditions that tightened octane markets in 2015 still exist, and they present an upside risk factor for summer gasoline prices.

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are primarily the result of changes in both crude oil prices and wholesale margins. The Brent crude oil price is forecast to average $35/b (83 cents/gal) this summer, compared with an average of $56/b ($1.33/gal) last summer. Any difference between actual crude oil prices and EIA's forecast would likely be reflected in the retail price of motor fuels. Absent other factors specific to the gasoline and diesel fuel markets, each dollar per barrel of sustained price change in crude oil compared with the forecast translates into a 2.4-cent-per-gallon change in product prices.

EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the Brent crude oil price) will average 47 cents/gal this summer, about 12 cents/gal lower than last summer but 7 cents/gal higher than the previous five-summer average. Wholesale margins are forecast to be lower this summer compared with last summer because of higher gasoline production, and because the severe refinery outages from last summer (particularly on the West Coast) are not expected this summer.

As in the case of crude oil, the market's expectation of uncertainty in monthly average gasoline prices is reflected in the pricing and implied volatility of futures and options contracts. New York Harbor reformulated blendstock for oxygenate blending (RBOB) futures contracts for July 2016 delivery that were traded over the five-day period ending April 7 averaged $1.40/gal. The probability that the RBOB futures price will exceed $1.85/gal (consistent with a U.S. average regular gasoline retail price above $2.50/gal) in July 2016 is about 5%.

Forecast wholesale diesel fuel margins average 32 cents/gal this summer, 10 cents/gal below last summer's level and 12 cents/gal below the previous five-summer average. Diesel margins remain weak compared with previous years, as growth in global demand for the fuel has slowed. Lower economic growth in emerging markets compared with previous years and a switch in the composition of economic activity in those markets (particularly China) away from diesel-intensive manufacturing have reduced growth in distillate demand. However, with strong gasoline margins, refinery runs have been high, contributing to high levels of diesel production despite the relatively weak demand.

Motor Gasoline

During the 2016 summer driving season (April through September), projected motor gasoline consumption averages almost 9.5 million b/d, an increase of 120,000 b/d (1.3%) compared with last summer. A year-over-year increase in summer highway travel, projected to be 2.3%, is partially offset by a 1.0% increase in fleet-wide fuel efficiency. Finished motor gasoline is supplied by four sources: domestic refinery output, fuel ethanol blending, net imports of gasoline and gasoline blending components, and withdrawals from primary inventories. EIA expects that domestic refinery production, including gasoline blendstock output, will be about 70,000 b/d higher this summer than last summer. Fuel ethanol blending into gasoline this summer is projected to increase by 20,000 b/d from last summer's level to almost 950,000 b/d, which is 10.0% of total gasoline consumption. Projected total gasoline net imports (including blending components) are down 60,000 b/d from last summer.

At the beginning of the summer driving season (April 1), total gasoline stocks were 246.0 million barrels, 14.5 million barrels higher than a year ago and 23.7 million barrels above the five-year average for beginning-of-season stocks. Stock withdrawals have not been a significant source of motor gasoline supply for the summer season in recent years, having averaged only 42,000 b/d during the previous five summer seasons. This summer, the total gasoline stock draw is projected to average 130,000 b/d, compared with a 35,000 b/d draw last summer. Total gasoline inventories are projected to end the summer at 222.2 million barrels, 3.0 million barrels below last year's level at that time, but 7.5 million barrels above the previous five-year average.

Diesel Fuel

Projected consumption of distillate fuel, which includes diesel fuel and heating oil, averages more than 3.9 million b/d this summer, up 20,000 b/d (0.6%) from the level last summer. This growth is driven by increasing manufacturing output and trucking activity related to economic growth and international trade. This growth is partially offset by lower consumption from railroads.

Distillate fuel is supplied by four sources: domestic refinery output, biodiesel blending, withdrawals from primary inventories, and net imports. EIA expects refinery output of distillate fuel to average almost 5.1 million b/d this summer, up 40,000 b/d from last summer's level. The production of biodiesel is forecast to average more than 100,000 b/d this summer, up about 10,000 b/d from last summer. Projected net exports of distillate fuel average 1.2 million b/d this summer, up from 1.1 million b/d last summer.

Distillate inventories are projected to start the summer at 163.0 million barrels, up substantially from the 128.3 million barrels recorded at the start of last summer and 33.9 million barrels above the previous five-year average. Distillate inventories typically build during the summer season in preparation for the heating season. This summer, the build is forecast to average 59,000 b/d, down from the 112,000 b/d build recorded last summer, but up from the five-year average summer build of 49,000 b/d. Forecast end-of-summer stocks are 173.8 million barrels, up from the 148.8 million barrels recorded at the end of last summer, and 35.7 million barrels above the five-year end-of-summer average.

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