US EIA predicts summer gas prices similar to last year

  • US EIA predicts summer gas prices similar to last year

    In the US EIA “Short-term and Summer Fuels Outlook” released today, we see these predictions for the summer of 2014 (April – September).

    1. US consumption of gasoline will be slightly higher (10,000 gallons) than the same period in 2013
    2. Brent crude oil prices will be $2 per barrel lower than the same period in 2013
    3. The US regular unleaded retail gas price will average $3.57, one cent lower than the same period in 2013, with these regional averages:
      1. East Coast $3.53 (same as 2013)
      2. Midwest $3.55 ($0.05 lower than 2013)
      3. Gulf Coast $3.37 (same as 2013)
      4. Rocky Mountain $3.52 ($0.09 lower than 2013)
      5. West Coast $3.85 ($0.02 lower than 2013)
    4. The US diesel retail gas price will average $$3.87, two cents lower than the same period in 2013

    From a fuel price management perspective, what does it mean if these predictions come true?

    1. Fuel volumes would essentially be unchanged across the entire US market, unlike in the summer of 2013 when the overall US fuel market increased by 90,000 gallons.
    2. Wholesale costs to fuel retailers would be slightly less than last year, possibly as much as $0.048 per gallon less.
    3. Depending on the region, fuel retailers may be able to see an increase of fuel margins where the fuel price holds relatively steady but wholesale costs are less.
    4. Overall fuel sales as measured in dollars would be less for regions such as the Midwest, Rocky Mountain, and West Coast. Publicly held companies who have their sites in these regions may report lower overall fuel revenues if volumes are essentially the same and street prices are lower. That’s why financial analysts shouldn’t pay too much attention to this metric that is outside the control of the retailer. But with careful attention played to margins, fuel profits may remain strong, and that’s worthy of attention.

    Obviously there is lots of uncertainty related to the future cost of crude, since a quick series of unexpected events could cause these predictions to be way off. That’s why the report shows a 95% confidence level of crude prices to be anywhere in the range of $60 to $130 per barrel. But for modeling purposes, this report does show one reference point that is useful for planning purposes.

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