2023 Gasoline and Diesel Price Outlook: What Drivers Can Expect in 2023
Explore the latest 2023 forecast on U.S. gasoline and diesel prices, revealing sustained higher costs compared to pre-pandemic levels and what this means for inflation and consumers.
The U.S. Energy Information Administration (EIA) projects that fuel prices will stay elevated throughout 2023, remaining well above the levels seen before the pandemic began.
Key Insights
- Fuel prices in the U.S. are unlikely to continue a steady decline, according to the latest EIA report.
- Average annual gasoline prices have surged sharply over the past two years, breaking the long-standing trend of prices below $2.75 per gallon since 2014.
- Diesel prices are expected to hover near historic highs in the coming year.
Although gasoline prices recently dropped to a one-year low, this dip is expected to be temporary. The EIA forecasts retail gasoline prices to average $3.51 per gallon in 2023, a slight decrease from previous estimates but still significantly higher than pre-pandemic averages.
Despite a recent 33% drop, current fuel prices remain 16% higher than last year’s figures and substantially above those before COVID-19. Diesel prices are also projected to stay close to record levels next year.
These elevated fuel costs have been a major contributor to the fastest inflation rates seen in four decades. The new forecast suggests that recent Federal Reserve interest rate hikes may not be sufficient to fully control inflation pressures. While fuel comprises about 8% of the U.S. Consumer Price Index (CPI), and core inflation metrics exclude volatile energy and food prices, the sustained high fuel costs indicate broader price pressure across the economy.
Fuel Prices Remain Elevated
Higher interest rates are designed to reduce consumer demand for goods and services, with the Fed's rate increases pushing the economy close to recession territory. Last week, retail gasoline prices averaged $3.39 per gallon, down from their June peak of just over $5.03 but still comparable to prices from a year ago.
The EIA report highlights that fuel prices will remain elevated relative to the pre-pandemic period. In 2020, average annual U.S. gasoline prices dropped to $2.18 per gallon due to pandemic-related shutdowns, but prices surged 39% in 2021 as the economy reopened and rose another 32% this year.
Even with an anticipated price decline in 2023, average retail gasoline prices are expected to be at least 77 cents higher per gallon than any year since 2014, when prices averaged $3.36. Refining capacity in the U.S. has fallen 5.5% since 2020, reaching its lowest level in years as some refineries that closed during the pandemic have not resumed operations.
Seasonal Trends and Regional Variations
Gasoline prices typically fall during the winter months due to lower demand and scheduled refinery maintenance. Recently, futures prices for February gasoline deliveries have dropped 21%, reflecting increased refinery output heading into the winter season.
However, regional differences remain significant. The EIA forecasts that retail gasoline prices along the Gulf Coast, near half of the nation's refining capacity, will average $3.12 per gallon next year. In contrast, West Coast prices are expected to be higher, averaging $4.27 per gallon due to state taxes and transportation costs.
Diesel prices, which influence consumer goods costs, have also declined recently but are expected to remain elevated in 2023 compared to pre-pandemic levels. Last week, diesel averaged $4.97 per gallon, down 35 cents since late October. The EIA projects an average diesel price of $4.48 per gallon in 2023, lower than this year's $5.05 but significantly above last year's $3.29. Historically, diesel prices had not surpassed $4 per gallon before this period, with the previous peak at $3.97 in 2012.
Explore useful articles in Economic News as of 17-12-2022. The article titled " 2023 Gasoline and Diesel Price Outlook: What Drivers Can Expect in 2023 " offers in-depth analysis and practical advice in the Economic News field. Each article is carefully crafted by experts to provide maximum value to readers.
The " 2023 Gasoline and Diesel Price Outlook: What Drivers Can Expect in 2023 " article expands your knowledge in Economic News, keeps you informed about the latest developments, and helps you make well-informed decisions. Each article is based on unique content, ensuring originality and quality.