Retail Gasoline and Diesel Prices Follow Crude Oil Prices Down

Gasoline and diesel prices are declining, and in many locations in Texas, gasoline is below $3 per gallon and diesel is under $4.

The Energy Information Administration (EIA), the data collection agency at the U.S. Department of Energy, and AAA, an industry organization that monitors fuel prices at the retail level, both show declines ranging from 18% to 33%.

EIA reported on May 8 the average regular gasoline price in the U.S. was $3.533 per gallon, which is an 18% decline of $0.795 from a year ago of $4.328.

The average price in Texas was $2.993, down $0.994 (25%) from $3.987 a year ago, according to EIA.

AAA reported similar numbers for Abilene ($2.958), Wichita Falls ($3.013), and East Texas ($2.943).

Diesel prices had the biggest declines averaging $4.046 (a 27% drop from $5.540 a year ago) across the U.S. and $3.461 (down 33% from $5.245), according to AAA numbers reported on May 9.

The major reason for the lower prices is the decline in crude oil prices, which have declined roughly 35% since last year, down from $110 in May 2022 to $75 this month for West Texas Intermediate (WTI) sold on the New York Mercantile Exchange.

“Crude oil is the main determinant in retail gasoline prices,” EIA states on its web page.

“According to our Gasoline and Diesel Fuel Update, the price of crude oil usually accounts for more than half of the final retail price of gasoline,” EIA stated. “In 2022, crude oil accounted for 57% of the retail gasoline price. The next largest share (18% in 2022) is the refinery margin, measured as the difference between the refinery gate price of gasoline, minus the price of crude oil. The refining margin reflects the value of refining crude oil into gasoline. The remaining price composition includes the distribution costs of moving the gasoline to the retail station (11%), retail margins, and fuel taxes (15%).”

EIA said its gasoline price forecast is primarily a function of crude oil prices and gasoline inventory levels. EIA inputs crude oil prices for WTI, and Brent oil, which is traded on the international market.

“Vehicle travel and fuel economy are relatively unaffected by short-term retail price changes,” EIA stated.

“Refinery operations are relatively slow to adjust to crude oil price changes,” EIA stated. “Crude oil and petroleum product prices are not directly used as an input in our forecast for refinery runs. Refinery runs are only affected by crude oil price changes and subsequent gasoline price changes’ effects on consumption. We model refinery runs as a function of petroleum product demand as well as seasonal consumption patterns and maintenance schedules.”

Even though crude oil and refined petroleum products have declined, EIA expects prices to be firm during the remainder of 2023. In its most recent forecast, EIA projected Brent oil to average $85 per barrel (current price is $77), and the national gasoline average will peak between $3.50 and $3.60 in June.

Alex Mills is the former President of the Texas Alliance of Energy Producers.