Oil and Gas

High Summer Gasoline Prices to Cut Fuel Use: EIA


Record gasoline prices and a contracting U.S. economy will reduce summer gasoline demand for the first time in 17 years, the government's top energy forecasting agency said Tuesday.

Gas Pump
Mark Lennihan

U.S. gasoline prices will hit a monthly peak of just over $3.60 per gallon in June, helping to reduce motor fuel demand by 0.4 percent this busy driving season compared to last summer, said the federal Energy Information Administration.

In its summer forecast, EIA said gasoline demand will be 36,000 barrels per day lower at 9.404 million bpd, the first summer decline since 1991.

Consumers will pay an average $3.54 a gallon during the summer driving season, which runs from April through September, up 61 cents from last year, according to the Energy Department's analytical and forecasting arm.

However, EIA cautioned that gasoline prices in some parts of the country "will cross the $4 per gallon threshold."

Gasoline Tipping Point

It said, "These retail price projections reflect higher prices for the refiner's average acquisition cost of crude oil, projected to average almost $97 per barrel, up from about $67 per barrel last summer."

For May and June alone, EIA said the average price for U.S. oil was expected to be about $103 per barrel.

The price of crude accounts for about 70 percent of the cost of making gasoline.

The national price for regular, self-service gasoline hit a record $3.33 a gallon this week, according to EIA.

Truckers will suffer the most at the pump, with the diesel fuel price forecast to average $3.73 a gallon this summer, up 88 cents from last year.

EIA expects the monthly price for diesel will peak in April at about $3.90 a gallon.

High gasoline prices are cutting into the extra money consumers have to spend on other goods and services, hurting the overall U.S. economy.

EIA expects the U.S. economy to decline in the first half of this year and then improve, ending 2008 with annual growth of 1.2 percent, the lowest rate since 2001.

The agency noted the economic stimulus checks the government will start sending out in May "are expected to boost real disposable income but are not expected to have a significant impact on motor gasoline consumption."

Gasoline prices will hit record levels, even though there will be plenty of fuel supplies.

Gasoline inventories at the April 1 start of the summer driving season were estimated to be 224 million barrels, up 23 million barrels from a year ago and the highest in 15 years.

Domestic gasoline production is forecast to be 20,000 bpd lower, or 0.2 percent less, this summer at 8.241 million bpd, while ethanol output is estimated to be 133,000 bpd higher, or 32 percent more, at 551,000 bpd.

Because of high inventories and lower demand, U.S. imports of summer gasoline are expected to be 91,000 bpd less, or down 7.8 percent, at an average 1.074 million bpd, the EIA said.

EIA expects the monthly price for diesel will peak in April at about $3.90 a gallon.

World, U.S. Oil Demand Growth to Fall

The EIA also said that world oil demand growth in the second quarter from a year earlier will be 180,000 barrels per day less than the agency's prior forecast.

"The global oil market remains fundamentally tight entering the second quarter, despite a slowdown in U.S. oil consumption and growing risks to global economic growth," EIA said in its monthly forecast.

"The combination of rising world oil consumption and low surplus production capacity is putting upward pressure on oil prices. The flow of investment money into commodities has contributed to crude oil price volatility," the agency said.