Retail gasoline prices ahead of Labor Day are the highest since 2014

On August 29, 2022, the Monday before the Labor Day weekend, the regular gasoline retail price averaged $3.83 per gallon (gal) across the United States, an increase of 69 cents/gal (22%) from the same time in 2021. The retail gasoline price has decreased by $1.18/gal since it peaked in mid-June 2022 and has fallen every week since June 13, according to our Gasoline and Diesel Fuel Update (Figure 1). The Labor Day weekend marks the unofficial end to the summer driving season, when gasoline demand is usually at its highest in the United States.

Because people traveled less during the COVID-19 pandemic, gasoline demand decreased significantly in 2020. Demand increased in 2021, contributing to rising crude oil and gasoline prices over the course of that year. In 2022, Russia’s full-scale invasion of Ukraine contributed to even higher gasoline price increases, as sanctions on Russia’s crude oil and petroleum product exports reduced the global availability of petroleum products such as motor gasoline and diesel fuel. When adjusted for inflation, prices are the highest they’ve been since 2014.

Tighter global crude oil supplies and constraints on refiner capacity have contributed to reduced fuel availability and higher gasoline prices in 2022. As a result, gasoline inventories have remained below the five-year (2017–2021) low since May (Figure 2). Between June and July, decreasing prices most likely reflected increasing gasoline inventories. However, between July and August, gasoline inventories decreased as lower refinery runs in the Midwest and on the West Coast have contributed to less gasoline production. U.S. gasoline inventories typically decrease during the summer as a result of strong demand, and as summer ends, we expect a seasonal decrease in gasoline demand beginning in September. Refinery production of gasoline is also likely to decrease in September and October because refiners typically perform maintenance during the fall season.

Crude oil prices usually contribute around half of the total price of gasoline, and high crude oil prices have led to high gasoline prices this summer. From February to April of this year, higher crude oil prices accounted for about 60% of the retail gasoline price (Figure 3). Increasing crude oil production from both international and U.S. domestic producers—partially in response to high crude oil prices, less crude oil imports into China, and broad concerns about a potential economic downturn in July—put downward pressure on crude oil prices. In response, the Brent crude oil price decreased again to under $100 per barrel in August.

After the price of crude oil, the cost of refining usually accounts for the next largest share of gasoline prices. The COVID-19 pandemic and other factors induced several refinery closures in 2020 and 2021 in the United States and globally. In 2022, the loss of petroleum exports from Russia led to reduced global availability of refined products. Refinery capacity constraints caused a sharp increase in refining costs, particularly in May and June, when refining accounted for more than 25% of the retail gasoline price, compared with an average of 16% in 2021.

Taxes reflect the average price of federal, state, and local taxes, and they are levied at a static value per gallon of gasoline. The share of taxes generally decreases as the total gasoline price increases.

The share of distribution and marketing, which accounts for miscellaneous logistical costs and last-mile distribution from wholesale racks to retail stations, fell in May and June with the rising cost of wholesale gasoline paid by retailers.

U.S. gasoline prices vary regionally, reflecting local supply and demand conditions, different fuel specifications required by state laws, and taxes (Figure 4). Regional gasoline prices are usually the highest on the West Coast due to the region’s limited connections with other major refining centers (including the Gulf Coast), tight local supply and demand conditions, and requirements for gasoline specifications that are more costly to manufacture. West Coast prices as of August 29 were $4.78/gal, an increase of $0.85/gal (22%) over the same time last year. The Rocky Mountain region faces similar logistical constraints as the West Coast, although overall supply and demand in the region are both lower. Rocky Mountain gasoline retail prices averaged $4.02/gal, an increase of $0.37/gal (10%) over 2021.

The Gulf Coast accounted for 54% of the country’s total refining capacity as of January 2022, and it produces more gasoline than it consumes. As a result, the price of gasoline in the Gulf Coast is often the lowest in the United States. On August 29, the average retail gasoline price for the Gulf Coast was $3.36/gal, an increase of 58 cents (21%) compared with the same time last year. Midwest prices increased 67 cents (22%) compared with 2021, at $3.68/gal this year. On August 24, a refinery fire at BP’s 435,000 barrel-per-day refinery in Whiting, Indiana–the largest refinery in the region–has taken several of the facility’s units offline, and this incident may contribute to a temporary increase in gasoline prices in the Midwest.

On the East Coast, the largest gasoline demand market in the United States, retail gasoline prices were $3.72/gal on August 29, an increase of 70 cents (23%) compared with 2021. Although the largest source of U.S. gasoline demand, the East Coast has relatively little refinery capacity, and it frequently receives gasoline from the Gulf Coast to meet its consumption needs. In the past, the East Coast has also accounted for most U.S. gasoline imports, with over 80% of U.S. gasoline imports in 2021, which it primarily receives from Europe and Canada. Imports are down this year, contributing to the East Coast price premium and making the region more reliant on transfers from the Gulf Coast. Space along the major pipelines–Colonial Pipeline and the Products S.E. Pipeline—that connect the two regions, is at capacity, and the price spread between the two regions has widened to reflect the logistical limitations on moving fuel between the two regions (Figure 5).

The spread between conventional grade gasoline at New York Harbor and the U.S. Gulf Coast peaked at 59 cents/gal near the end of July, before decreasing in August as shipments from the Gulf Coast apparently responded to the historically wide spread. Capacity constraints, combined with strong East Coast demand and limited supply, may continue to raise the spread between the Gulf Coast and the East Coast in the future.

For questions about This Week in Petroleum, contact the Petroleum and Liquid Fuels Markets Team at 202-586-5840.