According to the U.S. Energy Information Administration website news article published on April 12, 2023:
EIA forecasts consumer expenditures on gasoline in 2023 to be lower than 2022
In the April Short-Term Energy Outlook (STEO), we forecast U.S. regular grade retail gasoline prices will average $3.49 per gallon (gal) during summer 2023 (April through September), 79 cents/gal less than during summer 2022 (Figure 1). The lower forecasts of both crude oil prices and crack spreads—the difference between wholesale gasoline prices and crude oil prices—reduced our forecast retail gasoline prices. Given the rapid price increases heading into last summer, U.S. drivers may ask how volatility in crude oil prices could affect gasoline prices and household budgets this year. To address this question, we developed our first STEO Perspectives supplement with crude oil price scenarios that analyze a range of outcomes depending on higher or lower crude oil prices. In these scenarios, which reflect extreme price variations based on recent market activity, U.S. regular grade retail gasoline prices range from $3.08/gal to $3.95/gal during summer 2023.
Household expenditures on gasoline are consistently the most expensive category of household spending directly related to energy. In 2021, the most recent year of data in the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, average annual household spending on gasoline totaled $2,148—slightly more than electricity, natural gas, and fuel oil combined. Two of the cases we included in our Perspectives supplement use market-derived expectations of future crude oil prices to establish possible high and low crude oil price outcomes for the remainder of this year. The baseline case is the one we use as our April 2023 STEO forecast. In all three cases, we found that average U.S. households will be spending less in 2023 than in 2022, even in the case where the Brent crude oil price rises to more than $140 per barrel by the end of the year (Figure 2).
The Consumer Expenditure Survey includes data on annual household energy expenditures through 2021. We use this series as a baseline for our analysis. To estimate annual spending for 2022, we adjust the 2021 expenditures number to account for observed annual changes in gasoline consumption and price and the number of households in the United States.
For the 2023 forecast, we varied the West Texas Intermediate (WTI) crude oil price widely across three cases as we describe below. We then adjusted those WTI prices to Brent crude oil prices by maintaining a consistent $6 per barrel (b) difference between WTI and Brent in all cases. The only assumption we modified across these STEO-based cases was crude oil prices. We applied the oil price in each case first in our S&P Global macroeconomic model to calculate its effect on economic activity and employment, and then we modeled these inputs into Short-Term Integrated Forecasting System (STIFS).
For the April STEO, we forecast the WTI price to increase from the March average of $73/b to $80/b in December 2023 but fall to $72/b in December 2024. We forecast the Brent crude oil price to increase from the March average of $78/b to $86/b in December 2023 but fall to $78/b in December 2024. These price changes result from our expectation of relatively balanced inventories through the second half of 2023, followed by oil production outpacing consumption in 2024.
This analysis uses the 95% confidence interval for WTI futures prices to develop the high and low oil price cases. We derive the 95% NYMEX WTI futures price interval to develop price assumptions in this analysis from market information from monthly options covering the period through 2024 as traded during the five trading days ending April 6, 2023. As of that time, the upper bound of the WTI price was $101/b in June, increasing to $135/b by December 2023. The lower bound was $63/b in June, falling to $43/b by December 2023. Our high and low price cases use the same values as the upper and lower bounds of our 95% confidence interval (Figure 3).
Varying our crude oil pricing assumptions as described above results in a wide range of potential consumer spending on gasoline this year in the United States, mostly due to price effects but also because of resulting changes in driving behavior and gasoline consumption. Annual average retail gasoline prices for all formulations range from $3.13/gal to $4.03/gal in 2023. Our modeled expectation of average gasoline spending by U.S. households in 2023 ranges from $2,140 to $2,730. In all cases, retail gasoline prices and average household spending on gasoline are less than in 2022 when gasoline prices averaged $4.08/gal and household gasoline spending was $2,780.
Forecasting gasoline consumption in cases with rapid price changes is inherently uncertain. Gasoline consumption is driven by consumer choices and behavior. These behaviors can be affected by a wide variety of factors that are not easily captured in economic models, such as:
- Alternative transportation options
- The duration of higher prices
- Consumer responses to specific price points (that is, consumers may have a more noticeable response when prices move above a certain price point—$4/gal or $5/gal, for example)
- Consumers’ ability to change travel plans
- Potential refinery or logistical disruptions to gasoline supply
For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.
