Petroleum products

U.S. gasoline prices
Lower crude oil prices will push down U.S. average retail gasoline prices to less than $3.00 per gallon (gal) next year. We expect the retail gasoline price will average less than $2.90/gal next year, about 20 cents/gal (6%) less than this year. In most regions, we forecast prices to fall below $3.00/gal by the fourth quarter of this year and remain less than $3.00/gal during 2026. On the West Coast (PADD 5), prices will average close to $4.00/gal next year. This region faces higher gasoline production costs, is relatively isolated from other U.S. refining centers, and we expect will lose two refineries, which will contribute to a reduction in gasoline production in the region. This effect will partly offset falling crude oil prices. Nonetheless, we forecast West Coast retail gasoline prices will be lower than in our July STEO.

U.S. distillate prices and margins
We forecast the U.S. retail diesel price will average almost $3.70/gal in 2025, down 3% from 2024. Diesel prices in our forecast fall by another 5% in 2026. Lower distillate prices are entirely the result of lower expected crude oil prices, which are partly offset by rising distillate crack spreads—the wholesale cost of distillate fuel oil minus the cost of crude oil. We expect the Brent crude oil price will average $67 per barrel (b) this year, down from $81/b in 2024, and we expect it will fall to an average of $51/b in 2026. The drop in prices will lower crude oil’s contribution to diesel prices by 32 cents/gal this year compared with 2024 and will account for an additional 38 cents/gal drop in 2026.

However, we expect that lower crude oil prices will be partly offset by rising distillate crack spreads, a measure of refining margins. The distillate crack spread averages 69 cents/gal this year, up 17 cents/gal from 2024, and will increase to 90 cents/gal next year.

The higher crack spread reflects a number of global and national factors that put upward pressure on the distillate price, counteracting downward pressure from crude oil prices. Reductions in distillate supplies because of refinery outages in the Middle East and limitations on more distillate-rich crude oil grades are contributing to wider global distillate margins. Although these factors may be resolved in the near term, we expect decreasing refinery production due to refinery closures in the United States and Europe will continue to present longer term structural challenges for global distillate supplies. Lower inventories of distillate in the United States are also contributing to higher crack spreads, which are likely to continue as U.S. distillate demand increases in the fall.

U.S. distillate inventories
We forecast U.S. total distillate inventories (including biomass-based and petroleum distillate) to decrease 14% over the year in 2025, ending the year at 121 million barrels, the lowest end-of-year level since 2000. We expect inventories to remain near this level in 2026. Factors contributing to lower U.S. distillate inventories include:

• Lower production and imports of U.S. renewable diesel and biodiesel, creating more demand for petroleum-based distillate to supply the market
• Strong international demand supporting U.S. distillate exports

We expect renewable diesel and biodiesel supply to increase over time to meet existing and future Renewable Fuel Standard (RFS) mandates, which should reduce draws on distillate inventories. However, inventory levels remain low in our 2026 forecast because we expect continued strong export demand, and because decreased U.S. refinery capacity will likely reduce domestic production.

Lower distillate inventories increase the risk of higher prices and price volatility from supply disruptions. This effect is especially true during higher demand seasons such as the harvest season in the Midwest and the winter heating season in the Northeast.

We forecast distillate inventories in the Midwest (PADD 2) will end September at 27.0 million barrels, which, would be the lowest end-of-September level in our data, which dates back to 1981. Autumn typically has high distillate demand in the Midwest because of distillate’s use in harvesting crops.

We forecast distillate inventories on the East Coast (PADD 1) will start the winter heating season in November at 26.3 million barrels. If realized, East Coast inventories would also be the second lowest end-of-October level in our data, which dates back to 1981.