For the past two months, retail gasoline prices have been on a steady march higher, from a low of around $2.24 for a gallon of regular gasoline at the beginning of January to $2.75 a gallon as of Monday. For the summer driving season (April to Labor Day), the U.S. Energy Information Administration (EIA) expects gasoline to average $2.76 a gallon, nine cents a gallon less than last summer’s average.
Averages, though, conceal a multitude of variations. In its Summer Fuels Outlook published Wednesday, the EIA projects that gasoline will average $2.74 a gallon in April, rise to a peak of $2.83 a gallon in June, and decline slowly to $2.66 a gallon by September.
Regional differences also affect the average. Gasoline prices in California averaged $3.90 a gallon Thursday morning, according to GasBuddy. Drivers in Alaska, Oregon, Nevada, Washington and Hawaii will all pay more than $3 a gallon today, while motorists in Alabama, Arkansas, Mississippi and South Carolina will pay less than $2.50 a gallon. The EIA has forecast a West Coast summer average of $3.27 a gallon and Gulf Coast summer average of $2.51 a gallon.
The price of crude oil is the primary determinant of the price of gasoline, and the EIA expects the price of Brent crude to average $67 a barrel this summer, $7 a barrel less than last summer’s average. As of Thursday morning, Brent crude for June delivery traded at around $71.30 a barrel. Other things equal, for every dollar change in the price of crude, the price of gasoline moves by 2.4 cents a gallon.
What about the outlook for crude prices then? In January, stockpiles of crude oil and gasoline were well above their five-year averages. Although U.S. stockpiles of crude rose by 7 million barrels last week, they now rest comfortably in the middle of the five-year average range for this time of year. Gasoline inventories, more than 11 million barrels above the five-year average in January, now sit at about 4 million barrels higher than the average.
Brent crude oil prices have jumped almost $20 a barrel since the beginning of the year. There are several reasons for that sharp rise. OPEC and its partners (known as OPEC+) have reduced production by about 800,000 barrels a day since October. A bigger factor, however, may be unplanned disruptions.
U.S. sanctions have reduced shipments of Iranian crude, while renewed fighting in Libya has sharply cut that country’s production. According to a report from Reuters, unplanned disruptions have cut 900,000 barrels a day from production since the beginning of the year. Venezuelan production, which is not included in the OPEC+ cuts, dropped from more than 1.4 million barrels a day in January and February to below 1 million barrels a day in March.
The EIA forecasts that U.S. gasoline prices will average $2.60 for all of 2019, down from an average of $2.72 last year. For that to happen, the unplanned disruptions to crude production will have to be mitigated (relaxing of U.S. sanctions on Iran, the return of Venezuelan barrels to the market, peace in Libya) or OPEC+ will have to produce more or non-OPEC producers like the United States will have to produce more. The EIA expects U.S. production to average 12.39 million barrels a day this year, up by 1.43 million barrels a day compared to the 2018 average. Unless OPEC+ agrees in June to even deeper production cuts, U.S. production growth alone could keep gasoline pump prices at the levels that EIA is forecasting.