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April 19, 2023

Forecast retail gasoline prices for summer 2023 will be lower than last summer

monthly U.S. average retail regular gasoline price
Data source: U.S. Energy Information Administration, Short-Term Energy Outlook (STEO), April 2023
Note: Price data are in nominal terms, meaning not adjusted for inflation.

In our April Short-Term Energy Outlook (STEO), we estimate that U.S. retail gasoline prices this summer for regular-grade gasoline will average about $3.50 per gallon (gal), or about 80 cents/gal less than the price last summer, which was the highest price since summer 2014. The summer average includes retail prices from April through September. Lower forecast crude oil prices compared with last year are one of the primary reasons we forecast lower gasoline prices this summer. We estimate gasoline prices (despite being lower than last year) will increase slightly from current levels later in the summer because of seasonal factors and rising crude oil prices.

Weekly U.S. gasoline prices averaged $3.42/gal in March—3 cents/gal higher than in February and 80 cents/gal lower than in March 2022. We estimate retail gasoline prices will increase to $3.53/gal in April and remain above $3.45/gal through August.

One factor causing prices to start rising in April is the cost of switching to seasonal Reid vapor pressure (RVP) requirements for summer-grade gasoline. Many refiners have already shifted over to producing the more expensive summer grade, and they are required to have fully switched over by May 1. Retailers, however, are not required to switch over until June 1.

The forecast Brent crude oil price in the April STEO averages $87 per barrel (b) over the summer. Last summer, Brent crude oil prices were much higher, averaging above $107/b. March crude oil prices averaged $78/b. Despite lower crude oil prices in March, we expect crude oil prices to rise in April because of additional crude oil production cuts that OPEC and partner countries announced on April 3, 2023.

We assume in the STEO that crude oil is the main determining factor in retail gasoline prices. According to our Gasoline and Diesel Fuel Update, the crude oil price usually accounts for more than half of the final retail gasoline price. In 2022, crude oil accounted for 57% of the retail gasoline price. The next largest share of the gasoline price, 18% in 2022, is the refinery margin, measured as the wholesale spot price of gasoline minus the crude oil price. The refining margin accounts for the value of refining crude oil into gasoline. The remaining difference between the gasoline spot price and the gasoline retail price is fuel taxes and the distribution costs of marketing and moving the gasoline to the retail station.

components of the cost per gallon of U.S. regular gasoline
Data source: U.S. Energy Information Administration, Gasoline and Diesel Fuel Update

Additional OPEC production cuts, refinery outages, or changes in underlying economic conditions could all contribute to changes in gasoline supply or demand and, therefore, change the gasoline retail price outlook.

The Perspectives supplement that we released with our April STEO discusses our forecast of alternative scenarios for gasoline prices and gasoline spending this summer.

Principal contributor: Kevin Hack