Vacation Gas Preview: What to Expect & What Not to Expect with Summer Gas Prices

written by Tom Kloza, Kloza Advisors LLC

In a few days, the insatiable news cycle will see reporters examine what to expect from “driving season” gasoline prices this summer. “Good news” will no doubt be trumpeted since current retail numbers tend to be 40-50 cts/gal below last year, and some $1.80/gal beneath the all-time highs of 2022.

Pundits will differ on the trajectory of fuel prices just as they grapple with the definition of the somewhat mythical driving season. The Energy Information Administration counts 183 days for this period, starting from April 1 and ending September 30. However, most U.S. fuel marketers limit vacation driving to the 131 days between the Friday before Memorial Day and Labor Day Monday.

The two years that followed the record 2022 run offer contrasting templates. Last year saw a very tame season. Early second-quarter numbers rallied above $3.60/gal, but a quiet tropical season in Texas and Louisiana brought an eventual slide to $3.25/gal by mid-September. In 2023, line charts resembled the dorsal outline of a Bactrian camel—April brought a rise to $3.65/gal, which was followed by a cheap intermezzo before achieving a second hump near $3.90/gal in August.

Most of the petroleum analyses this year point to a steady run of temperate prices. WTI crude prices barely above $60/bbl are likely, and the history of raw costs in that neighborhood conjures street prices well below current levels (the AAA price at the time of this writing is just below $3.18/gal). The first trip to $62/bbl WTI in the U.S. was accompanied by nationwide retail averages of $2.50/gal or less. Street prices of $2.60-$2.70/gal prevailed when crude retreated from lofty levels in 2015, as well as during intervals in 2018 and 2019 with $60/bbl crude.

But the fuel business has changed in the post-COVID environment. The mantra of “Forty cents/gal is the new 20cts/gal” has taken hold for the thousands of marketers who sell gasoline across the country. When oil prices first eclipsed $100/bbl in 2007, the average gap between wholesale costs and street prices was about 17cts/gal. Nowadays, it tends to vary between 35-50cts/gal.

Refinery margins are also quite solid ahead of the Memorial Day holiday. Processors fortunate enough to be operating smoothly in California can today collect $35-$45/bbl in gross margin for their gasoline output. Gulf Coast margins are closer to $20/bbl. CME RBOB futures fetch about $27/bbl over WTI. Recent history is daunting—those high spring “cracks” may be sliced by 25-50% by the time August and September roll around.

Ahead of the Memorial Day Weekend kickoff, here are some of the major unanswered questions that may determine the pricing backdrop for this year’s mythical driving season:

• Will there be any demand “lift” tied to the dividend of cheaper prices?

  Most analysts answer this question with a resounding “No!” for various reasons. Petroleum economist Phil Verleger noted last weekend that consumption spurts in spring and summer fuel are notoriously linked to seasonal increases in construction and agriculture. Homebuilding this year is sluggish due to a 17-year peak in the supply of new homes. Year-to-date gasoline demand is measured at just 0.4% above last year, translating to June, July, and August demand projections of 9.1-9.3 million b/d. Oddly, peak gasoline demand in 2024 occurred in May at 9.396 million b/d, mirroring the early demand crest from 2008.

• Does the loss of the 268,000 b/d Houston Refining refinery matter?

  Approximately 60% of that refinery’s output is sold to domestic customers, with the remainder going offshore. Other PADD 3 refiners can offset the loss unless extreme heat and power grid issues disrupt summer production rates.

• Could OPEC+ scheduled increases in crude supply be delayed?

  There are whispers about a pause in the unwinding of previous production limits. Prices may need to fall further for that decision to occur.

• Will the 650,000 b/d refining giant in Nigeria, known as Dangote, finally produce some on-spec gasoline for Europe and the U.S.?

  This is unlikely before the third quarter, but at some point, that refinery will undoubtedly influence North Atlantic markets.

• Do the lowest U.S. distillate stocks since 2005 make an impact?

  Yes, it’s almost certain that solid margins for diesel and jet fuel will encourage U.S. refiners to keep pushing forward, even if gasoline becomes the “unwanted hydrocarbon.” Increased production is essential to replenish distillate stocks, but a very light crude slate might result in excess gasoline.

• Will hurricanes have an effect?

  We’ll leave meteorology to the experts, but significant variations in futures participation yielded different outcomes in the last two driving seasons. In 2023, there was a notable “storm chasing” trend with traders expanding positions in RBOB futures. That trend did not occur last summer, despite much talk about a record hurricane season.

All these factors provoke a couple of conclusions. The narrow marketer-defined driving season (this Friday through Labor Day) is not likely to see national numbers slip below $3/gal. However, we suspect that street prices may indeed break below $3/gal by September 30, and it is almost certain that the final quarter of 2025 will see the lowest quarterly averages since COVID. June, July, and August should see average street prices coalesce between $3.05-$3.15/gal.

However, the final analysis also illustrates the fallacy of relying on averages to measure consumer health. Most motivated consumers can find gasoline some 20-60 cts/gal below ambient averages across the Lower 48 states. The difference between best and average in California is about $1.10/gal, or about what finished motor fuel cost at the beginning of the 21st century. And there’s one more consideration. It is altogether possible that autumn 2025 will see U.S. consumers pay less than $1 billion per day for their motor fuel, beating last year’s expenses by $100 million a day or more. Impressive, no doubt. But that savings pales in comparison to the diminished wealth that comes with downtrodden equities. Making up for a $1 trillion loss in stocks requires more than 27 years of savings at the rate of $100 million per day.