U.S. gasoline prices decline this fall amid lower gasoline demand and falling crude oil prices

On November 20, 2023, the Monday before Thanksgiving, the regular gasoline retail price averaged $3.29 per gallon (gal) across the United States, 10% less than the same time last year (Figure 1). In real terms (after adjusting for inflation), retail gasoline prices this Thanksgiving weekend are 13% lower than last year. Prices in real terms for the week before Thanksgiving remain higher than pre-pandemic levels for the third consecutive year.

Lower-than-usual gasoline demand this fall combined with the seasonal switch to winter-grade gasoline—when regulations on gasoline volatility allow refiners to use less expensive components to produce gasoline—have helped reduce gasoline prices by 55 cents/gal over the last two months. Recent declines in crude oil prices and low refining margins for producing gasoline suggest gasoline prices could remain relatively low through the end of the year. The American Automotive Association (AAA) forecasts 55 million people will travel 50 miles or more for the Thanksgiving holiday this year, a 2% increase compared with 2022.

U.S. gasoline demand typically falls after Labor Day, which marks the unofficial end of the summer driving season, when gasoline demand is usually at its highest. This year, gasoline demand, which we measure as product supplied, fell more than usual in September. We estimate gasoline demand for September was 8.5 million barrels per day in our Short-Term Energy Outlook (Figure 2). If confirmed by Petroleum Supply Monthly data, this demand represents an 8% decline from August compared with a 4% decline in the pre-pandemic five-year (2015–19) average.

Higher gasoline prices and improved fuel efficiency of vehicles may be contributing to lower gasoline demand than in previous years. A 2022 survey from AAA suggests many drivers change their driving habits, including driving less, when they view gasoline prices as being too expensive. Although the U.S. average gasoline price has been lower than 2022 levels for much of this year, rising crude oil prices drove prices above 2022 levels in September. This trend was most apparent on the West Coast, where prices increased enough that the California Air Resources Board authorized an early transition to winter-blend gasoline to address high gasoline prices.

Recent changes in crude oil prices suggest gasoline prices may remain relatively low through the end of the year. Crude oil prices are the primary driver of U.S. gasoline prices, making up 55% of the total cost to produce a gallon of gasoline as of September 2023. Despite crude oil production cuts by OPEC+ members over the last year, concerns about slowing economic growth that could reduce world oil demand have continued to put downward pressure on crude oil prices. The Brent crude oil price declined 15% from its most recent peak of $96.55 per barrel (b) on September 27 to $82.32/b on November 20, reaching its lowest level since July (Figure 3). Prices today are also lower than before the Hamas terrorist attack on Israel on October 7, which suggests the impact of recent tensions in the Middle East on crude oil prices has diminished. However, uncertainty around how the Israel-Hamas conflict develops could significantly change the outlook. A disruption in crude oil production or trade in the region, for example, could lead to higher oil prices.

Declining gasoline prices and recent crude oil price changes resulted in multiyear low refining margins for gasoline production in October, increasing the difference between refining margins for distillate and gasoline. We measure refining margins using the crack spread, which represents the difference between petroleum product prices and crude oil prices. The difference between gasoline and distillate crack spreads averaged 79 cents/gal in October, the highest difference between these products since December 2022 (Figure 4).

This relatively large difference in refining margins will likely contribute to lower gasoline prices in the coming months. Higher distillate crack spreads are giving refiners an incentive to run despite the lower gasoline crack spreads. U.S. refiners typically produce about twice as much motor gasoline as distillate fuel because of the physical characteristics of crude oil, and many U.S. refineries are designed to maximize gasoline production. Therefore, regardless of short-term differences in crack spreads, refiners cannot completely stop making some finished petroleum products in favor of others. As a result, gasoline inventories this fall increased above the previous five-year average for the first time since March 2022, putting downward pressure on gasoline prices.

U.S. gasoline prices vary regionally, reflecting local supply and demand conditions, different fuel specifications required by state laws, and taxes (Figure 5). Regional gasoline prices are usually highest on the West Coast because of the region’s limited connections with other major refining centers (including the Gulf Coast), tight local supply and demand conditions, and required gasoline specifications that make production more costly. West Coast prices as of November 20 averaged $4.42/gal, a decrease of 8% over the same time last year. The Rocky Mountain region faces similar logistical constraints as the West Coast, although overall supply and demand in the region are both lower. Rocky Mountain gasoline retail prices averaged $3.20/gal, down 12% from 2022.

Gasoline prices are usually the lowest on the Gulf Coast, which holds about half of U.S. refining capacity and produces more gasoline than it consumes. On November 20, the average retail gasoline price on the Gulf Coast was $2.79/gal, down 8% from the same time last year. On the East Coast, which has the most gasoline demand of the five regions, retail gasoline prices averaged $3.17/gal, down 11% from 2022. In the Midwest, prices decreased 11% from this time last year to average $3.12/gal on the Monday before Thanksgiving.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.