EIA expects gasoline and diesel prices to increase as U.S. economy recovers

National average motor gasoline and diesel prices in 2020 were the lowest since 2016: $2.17 per gallon (gal) for gasoline and $2.55/gal for diesel, according to the U.S. Energy Information Administration’s (EIA) Gasoline and Diesel Fuel Update. EIA expects that economic recovery and greater demand for transportation fuels will lead to higher prices for gasoline and diesel in 2021 and 2022. In its latest Short-Term Energy Outlook, EIA expects regular gasoline retail prices to average $2.42/gal in 2021 and $2.43/gal in 2022 and on-highway diesel prices to average $2.71/gal in 2021 and $2.74/gal in 2022.

Demand for transportation fuels fell in 2020 primarily because of responses to the COVID-19 pandemic. As the vaccines for COVID-19 become more widely distributed in 2021, EIA expects the effects of the pandemic on liquids fuels consumption to moderate.

EIA forecasts rising demand for gasoline and diesel in 2021 and 2022. EIA expects annual average motor gasoline consumption, which fell by an estimated 13% in 2020, to remain lower than 2019 levels through 2022. EIA forecasts light-duty vehicle miles traveled will increase as both economic activity and employment increase in 2021 and 2022. Long-term trends in improving vehicle fleet fuel economy will continue to put downward pressure on U.S. gasoline demand.

For distillate fuel oil demand (much of which is consumed as diesel), EIA expects 2022 consumption to be nearly equal to 2019 levels. Annual distillate fuel oil consumption fell by an estimated 8% in 2020.

EIA forecasts that crude oil prices will remain lower than 2019 levels through 2022, contributing to lower retail transportation fuel prices compared with the 2019 average. Because a barrel contains 42 gallons, each dollar-per-barrel change in the price of Brent crude oil tends to result in a 2.4-cents-per-gallon change in the price of petroleum fuels (all else remaining equal).

Additional information on EIA’s forecasts for petroleum consumption, production, inventories, and prices is available in the Short-Term Energy Outlook.

Principal contributor: Kevin Hack