US EIA sees summer fuel prices at eight-year high, but relief may be on the horizon
US drivers will see fuel prices this summer at their highest levels in eight years, but recent federal actions to quell crude supply disruption concerns as Russia continues its invasion of Ukraine are expected to help put downward pressure on oil prices, the US Energy Information Administration said April 12.
In its summer fuels outlook released alongside the April Short-Term Energy Outlook, the EIA forecast retail gasoline prices over the summer driving season from April through September to average $3.84/gal and retail diesel prices to average $4.57/gal, the highest inflation-adjusted prices for the summer since 2014.
The agency attributed the high prices to economic recovery from the pandemic and increased levels of geopolitical risk that have boosted oil market prices and volatility.
Despite higher prices, the EIA expects both gasoline and diesel consumption to increase this summer, with diesel nearly equaling its pre-pandemic demand level at almost 3.9 million b/d. The EIA put gasoline consumption at 9.2 million b/d, up nearly 1% from last summer but still below the 9.5 million b/d level seen in 2019.
“We expect refinery utilization to continue increasing and remain elevated through the summer as long as crack spreads remain high, which will contribute to gasoline inventories rising above the five-year average by June and to gradually falling prices,” the EIA said.
But the extent to which US refiners can increase the production and export to Europe of distillates, which include diesel and heating oil, “remains uncertain and is likely to affect US diesel prices,” the agency said.
It also stressed a high level of uncertainty in its forecast as the production and availability of Russian crude oil remains a major wildcard, as do actions countries and companies could take in response to Russia’s aggression.
While stronger economic growth typically leads to increased gasoline and diesel demand, high fuel costs could make consumers think twice before hitting the road and the potential for new COVID-19 variants and spikes in cases remains a factor to watch, the EIA said.
Oil price outlook
Weather-related disruptions at Kazakhstan’s Caspian Pipeline Consortium terminal along Russia’s Black Sea Coast and a fire following a Houthi missile attack at a Saudi Aramco oil storage and distribution facility added to volatility and supply risk already heightened by escalating sanctions against Russia and a US import ban on Russian energy products, the EIA said.
But the agency also noted actions that have helped offset these supply disruption risks, including announcements by the US and International Energy Agency to release a combined 240 million barrels of oil from strategic reserves over the next six months. Lockdowns in China following a surge in COVID-19 cases also added demand-side risks that put additional downward pressure on crude oil prices, the agency said.
“We forecast that rising consumption, falling oil production in Russia, and the risk of supply outages amid low global inventory levels will support crude oil prices in the coming months,” the agency said. “However, we expect the release of strategic reserves by the US and the IEA will limit upward price pressures.”
As such, the EIA lowered its 2022 oil price expectations. It now sees WTI in 2022 averaging $97.96/b, down $3.21/b from last month, and expects Brent in 2022 to average $103.37/b, down $1.85/b from the prior month.
For 2023, EIA expects WTI at $88.57/b, up $3.59/b from March, and sees Brent at $92.57/b, also up $3.59/b from the prior month.
Global oil output, consumption
The EIA lowered by 810,000 b/d to 99.80 million b/d its global oil demand estimate for 2022 and attributed the cut to downward revisions to global GDP growth made by Oxford Economics. The EIA’s global demand forecast for 2023 was similarly lowered by 820,000 b/d to 101.73 million b/d, but would be a 1.9 million b/d rise over the prior year.
“Lower expected oil production is primarily driven by reduced expectations of petroleum production in Russia, while lower expected consumption reflects reduced expectations of economic growth and associated fuels demand, as well as the impact of present COVID-19 responses in China,” the EIA said.
The agency forecast oil output in Russia to fall by 1.7 million b/d from February 2022 to the end of 2023, but said that “global oil production will nonetheless increase as a result of higher production elsewhere, mostly from the US and OPEC.”
OPEC crude production is expected to average 28.59 million b/d in the second quarter of 2022, a cut of 460,000 b/d from the prior estimate, while EIA raised its forecast for Q3 2022 by 10,000 b/d to 29.10 million b/d.
The EIA nudged down its 2022 outlook for US oil production by 20,000 b/d to 12.01 million b/d. EIA’s estimate for US oil production in 2023 also fell by 40,000 b/d to 12.99 million b/d but would still surpass the previous record for annual average output of 12.3 million b/d set in 2019.
That increased production “will be sufficient to contribute to net global builds in total petroleum inventories in 2Q22, and we expect global inventory to continue to build on a quarterly basis through the end of 2023,” the EIA said.