Summer 2006 Motor Gasoline Prices
July 1, 2006
This supplement to the July 2006 Short‐Term Energy Outlook (STEO) examines the various factors that have contributed to this summer’s high gasoline prices and discusses how they may continue to impact markets over the next several months
EIA’s forecast of the retail price of regular gasoline for the summer 2006 driving season (April 1 through September 30) has been revised steadily upwards from $2.62 per gallon in the April STEO to $2.88 per gallon in our current forecast. No more than 14 cents of this 26‐cent increase in the forecast gasoline price can be attributed to higher crude oil prices
Since November 2005, we had been forecasting monthly average 2006 motor gasoline prices to peak in May and then begin to decline. The retail price of regular gasoline in EIA’s weekly survey did hit a peak of $2.95 per gallon on May 15, but the subsequent decline was both shallow and short‐lived. Prices have risen sharply over the past 2 weeks and on July 10 reached $2.97 per gallon.
Retail gasoline prices can be broken down into the following three basic elements:
- Crude oil costs – the West Texas Intermediate (WTI) crude oil spot price at Cushing, Oklahoma, is used in this analysis as the benchmark crude oil price.
- Wholesale and retail price spreads – the wholesale price spread is the difference between the wholesale price of gasoline (refiner price of gasoline for resale)1 and the spot price of crude oil. The retail price spread is the difference between retail price of gasoline (less taxes) and the wholesale price of gasoline.
- Taxes – including Federal, State and local excise, sales, gross receipts, or other taxes applied to petroleum products (taxes on crude oil are included under crude oil costs).
Section 1 reviews the impact of rising crude oil prices on motor gasoline prices. Section 2 examines several factors that have contributed to the higher wholesale and retail price spreads, namely the U.S. gasoline supply and demand balance, the international gasoline balance, and the growing role of ethanol in the gasoline market. Taxes, which contribute about 47 cents per gallon to retail gasoline prices, have not changed significantly over the last year and is not reviewed in this analysis.