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Lower gasoline prices in the US this summer?

With the US consumer still showing resiliency and travel expected to rise year-over-year this Memorial Day weekend, we expect gasoline demand this summer to be higher than last year, but gasoline prices should be lower.

The national average price of gasoline in the US is currently about USD 3.50 per gallon, according to the Energy Information Administration (EIA), down about 20% from the same period a year ago. Currently, higher oil prices and refining margins account for most of the gasoline price disparity between 2023 and the pre-pandemic years of 2018 and 2019. Though gasoline inventories across the US have not increased materially from last year, with slightly more US refining capacity, lower crude oil prices, and lower refining margins, we expect gasoline prices for summer 2023 to remain below levels from summer 2022.
Not surprisingly, the price of oil is the biggest driver of gasoline prices, accounting for about 55% of the price. After that, state and federal taxes, distribution and marketing costs, and the process of refining the crude oil into gasoline (and other products) each account for about one-third of the remaining 45% of the price of gasoline.
CIO continues to expect crude oil prices to trend higher in 2H23 as global supply and demand balances tighten, but we expect prices to be below year-ago levels at least through October. Summer 2022 gasoline prices averaged USD 4.34 per gallon from Memorial Day to Labor Day, according to EIA data.

Despite below-average US gasoline inventories, we believe the price of gasoline will be lower this summer than last. However, upside risks to gasoline prices are always there. Geopolitical risks of crude oil supply remain (think Russia, Iran, etc.), weather risks to oil supply and refining capacity in the US are just a hurricane away (last summer was a relatively mild hurricane season), and we always have policy risks when politicians try to keep fuel prices low (think of the law of unintended consequences). All this considered, we expect gasoline prices for the summer of 2023 to average prices below a year ago, but as always we will be watching weather and US politics (and of course crude oil prices) for the risk of episodic price spikes.

CIO maintains a neutral view of US energy equities. With rising gasoline and jet fuel demand this summer, our expectation for rising crude oil prices, and the always present seasonal weather risks, the beginning of the summer driving season is also a reminder to be sure any diversified equity portfolio includes exposure to US energy companies, including refiners, integrated oil, exploration and production, oil field services, and energy infrastructure companies. Energy companies are currently about 4.5% of the S&P 500, and many are paying attractive dividends, are buying back stock, have almost no net debt, and have significant positive free cash flow.
Source: UBS

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