The U.S. average retail price for all formulations of regular gasoline on August 26, 2019, was $2.57 per gallon (gal), 25 cents/gal (9%) lower than the price at the same time last year. This drop in the gasoline price is a result of lower North Sea Brent crude oil prices (a global benchmark for crude oil and the most relevant determinant of U.S. gasoline prices), less gasoline demand, and higher gasoline inventories.
The price of crude oil is the most significant contributor to the price of gasoline. The U.S. Energy Information Administration (EIA) estimates that in July 2019, the price of crude oil accounted for 52% of the average U.S. retail price of regular gasoline, followed by taxes (18%), refining costs (16%), and distribution and marketing expenses (14%). Unlike taxes and the expenses associated with distribution and marketing, crude oil prices and refining costs tend to be relatively volatile and typically are responsible for most of the changes in gasoline prices.
Because a barrel of crude oil contains 42 gallons, each dollar per barrel of sustained price change in crude oil translates to an average change of about 2.4 cents/gal in petroleum product prices. The price of Brent crude oil fell 17% from $70 per barrel (b) in late August 2018 to $58/b in late August 2019, contributing to lower Labor Day gasoline prices compared with 2018.
The week leading into Labor Day is typically one of the busiest driving periods of the year in the United States. In EIA’s latest Short-Term Energy Outlook, EIA forecasts that U.S. drivers will drive 3.3 trillion miles in 2019, making 2019 the busiest year for automotive travel since at least 1970, according to data from the Federal Highway Administration (FHWA). Despite the increase in miles traveled, year-to-date consumption of finished motor gasoline—tracked in EIA data as product supplied—is slightly lower, probably because of an increase in fleet-wide vehicle fuel efficiency.
Relatively high gasoline production and slightly lower consumption have likely contributed to high inventory levels and put downward pressure on U.S. gasoline prices going into the Labor Day weekend. As of August 26, U.S. gasoline prices are 14 cents/gal lower than the average of the week before Labor Day for the past five years.
U.S. gasoline prices vary regionally, reflecting taxes, local supply and demand conditions, and the fuel specifications required by state laws. Regional gasoline prices are usually highest in the West Coast because of the region’s limited interconnections with other major refining centers (including the Gulf Coast), tight local supply and demand conditions, and the required specifications that make gasoline more costly to manufacture. West Coast gasoline prices on August 26 averaged $3.23/gal, or 65 cents per gallon higher than the national average.
The Gulf Coast contains more than half of the country’s total refining capacity and produces more gasoline than it consumes. As of August 26, gasoline prices in the Gulf Coast averaged $2.26/gal, 31 cents per gallon lower than the national average.
EIA expects that the monthly average price of U.S. regular gasoline in 2019 peaked in May at $2.86/gal and anticipates that monthly average prices will range between $2.55/gal and $2.68/gal for the remainder of the year. EIA forecasts that annual U.S. regular gasoline prices will average $2.61/gal in 2019 and $2.70/gal in 2020.
Principal contributor: Jesse Barnett