Summer Fuels Outlook

U.S. Gasoline and Diesel Fuel Prices

EIA expects that regular-grade gasoline retail prices, which averaged $3.69 per gallon last summer, will average $3.63 per gallon during the current summer (April through September) driving season. The projected monthly average regular retail gasoline price falls from $3.69 per gallon in May to $3.57 per gallon in September (see EIA Summer Fuels Outlook slideshow). Diesel fuel prices, which averaged $3.95 per gallon last summer, are projected to fall slightly to an average of $3.94 per gallon this summer. Daily and weekly national average prices can differ significantly from monthly and seasonal averages, and there are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 25 cents per gallon or more.

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by changes in both crude oil prices and wholesale margins. The retail price projections reflect falling prices for the cost of crude oil, best represented by the Brent crude oil price, which averages about $108 per barrel ($2.56 per gallon) this summer compared with the $109-per-barrel ($2.60-per-gallon) average of last summer. Crude oil prices that differ from EIA's forecast would be reflected in the price of motor fuels. Each dollar per barrel of sustained change in crude oil prices relative to the forecast translates into approximately a 2.4-cent-per-gallon change in product prices, absent the consideration of factors specific to the gasoline and diesel fuel markets.

EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the Brent crude oil price) will average 37 cents per gallon this summer, about 3 cents per gallon lower than last summer but 4 cents per gallon higher than the previous five-summer average. Forecast wholesale diesel fuel margins are 51 cents per gallon, 4 cents per gallon above last summer's level and 9 cents per gallon higher than the previous five-summer average.

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 RBOB futures contracts for July 2013 delivery traded over the five-day period ending April 4 averaged $2.97 per gallon. The probability that the RBOB futures price will exceed $3.35 per gallon (consistent with a U.S. average regular gasoline retail price above $4.00 per gallon) in July 2013 is about 12 percent.

Motor Gasoline

During this summer season (April through September), projected motor gasoline consumption declines by 20,000 bbl/d (0.2 percent) from last summer's average of 8.9 million bbl/d. Year-over-year increases in highway travel, projected to be 0.3 percent, are more than offset by an 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 primary inventories. EIA expects that domestic refinery production, including gasoline blendstock output, will increase by 20,000 bbl/d from last summer. Fuel ethanol blending into gasoline is projected to increase by 5,000 bbl/d from last summer's level to 865,000 bbl/d, which is about 9.7 percent of total gasoline consumption. Projected total gasoline net imports (including blending components) average 260,000 bbl/d, down slightly from that of last summer.

At the onset of the summer driving season (April 1), total gasoline stocks, at 220 million barrels, are 1 million barrels above the level of a year ago and the same as the previous five-year average for beginning-of-season stocks. Stock withdrawals have not been a significant motor gasoline supply source for the summer season in recent years, having averaged only 65,000 bbl/d during the previous five summer seasons. This summer, the projected average total gasoline stock draw is 56,000 bbl/d, compared with a 98,000-bbl/d draw last summer. Moreover, the seasonal pattern is different from that of last summer, which saw a steady draw on inventories throughout the season. This summer, total gasoline inventories are projected to stabilize mid-season, resulting in end-of-season inventories of 209.5 million barrels, 8.8 million barrels above last year's level and 1.7 million barrels above the previous five-year average.

Diesel Fuel

Projected consumption of distillate fuel, which includes diesel fuel and heating oil, averages 3.7 million bbl/d this summer, up 20,000 bbl/d (0.6 percent) from last summer. That growth is driven by increasing manufacturing output and foreign trade.

Distillate fuel is supplied by four sources: domestic refinery output, biodiesel blending, primary inventories, and net imports. EIA expects refinery output of distillate fuel will average 4.6 million bbl/d this summer, up 70,000 bbl/d from last summer. Biodiesel has been a small but growing part of the distillate pool. Biodiesel blending averaged 68,000 bbl/d last summer and is forecast to average about 82,000 bbl/d this summer. Projected distillate fuel net exports average 830,000 bbl/d this summer, down from the record 940,000 bbl/d last summer.

Distillate inventories are projected to start the summer at 112.4 million barrels, down substantially from the 133.8 million barrels recorded at the start of last summer and the previous five-year average of 136.6 million barrels. Distillate inventories typically build during the summer season in preparation for the heating season. This summer, the build is forecast to average about 110,000 bbl/d compared to the anomalous 35,000 bbl/d draw recorded last summer, but similar to the previous five-year average summer build of 71,000 bbl/d. End-of-summer stocks are 133.1 million barrels, up slightly from the 127.4 million barrels recorded at the end of last summer, but well below the five-year end-of-summer average of 149.6 million barrels.