The People of America's Oil and Natural Gas Indusry

Gasoline Prices Update

Mark Green

Mark Green
Posted May 27, 2011

What's up with U.S. gasoline prices? Or maybe we should say what's down?

The Energy Information Administration (EIA) reports the average price for regular gasoline has declined the past couple of weeks to $3.85 per gallon, down from $4 at the beginning of the month - a twist since the Memorial Day weekend historically marks the start of the summer driving season, higher fuel demand and rising prices.

The reason? Simple supply-and-demand economics, says API Chief Economist John Felmy, who briefed reporters on crude oil and gasoline price fluctuations this week.

Start with the price of crude oil, which accounts for 68 percent of the cost of gasoline. Crude prices reached $113 a barrel, reflecting demand from recovering global economies. Gasoline prices rose with them. "It's a function of the cost of making gasoline," Felmy said.

But gasoline demand in April slackened, down 2.2 percent from April 2010, Felmy said. Crude prices now are hovering around $100 a barrel. Put it all together and Felmy predicts changes in summer driving figures will be only slight. "People are going to take their vacations," he said.

Other indicators Felmy tracks:

  • Refineries are producing a record amount of finished gasoline. Gasoline inventories are above average, though slightly below last year's levels.
  • Refinery margins are improved from the fourth quarter of last year but still were less than a penny on the dollar in the first quarter.
  • Utilization rates at refineries - exceeding 85 percent for the first time this year - are a little misleading. That's chiefly because the government mandates that refiners blend an absolute level of 12.6 billion gallons of ethanol with gasoline this year. "It basically squeezes out some of the base gasoline that's needed to meet finished gasoline demand," Felmy said.

For more analysis on gasoline prices, here's a video John did in November:

For a detailed look at the multiple factors that go into gasoline production and pricing, check out API's updated primer, here.

Additional resource:

Heritage Foundation video debunking gasoline pricing myths

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.