MARKET WATCH

Gasoline prices may hit 3-year high in 2017 as cheap-gas era ends


Published: Jan 4, 2017 12:58 p.m. ET
By Myra P. Saefong - MARKETS/COMMODITIES REPORTER


U.S. prices for gasoline at the pump this year could reach their highest levels since 2014, thanks in large
part to efforts by major oil producers to boost crude prices, according to GasBuddy, a source for real-time,
local gas prices.


“Nearly all cities will see their highest [prices] in three years” in 2017, Patrick DeHaan, senior petroleum
analyst at GasBuddy told MarketWatch on Wednesday. “Los Angeles, Chicago, New York, Seattle are
likely to see over $3 a gallon.”


Late Wednesday morning, the average prices stood at $2.357, according to GasBuddy. That is up 17.6
cents from last month’s average and 36.6 cents higher than last year’s average.
This chart shows the forecast breakdown for each month this year:

 

GasBuddy forecasts a 2017 U.S. average price of $2.49 a gallon for gasoline. That
would snap a yearly trend that has seen prices fall annually since prices averaged $3.60
in 2012. In 2016, prices averaged $2.13, down from $2.40 in 2015 and $3.34 in 2014.
GasBuddy predicts that motorists will pay a total of $355 billion on gasoline in the U.S.
this year—$52 billion more than last year. Motorists had saved $39 billion on gasoline in
2016 versus 2015 (see chart below).

 

 

The Organization of the Petroleum Exporting Countries’ “desire to boost oil prices from
their two-year lull by cutting oil production is the major driver behind our forecast of
higher [gasoline] prices,” said DeHaan.


On Nov. 30, OPEC announced that it would cut output by 1.2 million barrels a day to a
ceiling of 32.5 million barrels a day. Oil-producing nations not part of OPEC, including
Russia, then agreed on Dec. 10 to cutback their output by nearly 600,000 barrels a day.


Not long after the OPEC announcement, futures prices for gasoline RBG7, +0.86% on
the New York Mercantile Exchange rose to levels not seen since June and GasBuddy
predicted that prices would rise to the $2.30s level at Christmastime. Last month’s
average was $2.18, but last week’s average was $2.29.


The OPEC deal is a “critical piece of the price puzzle,” according to GasBuddy’s Fuel
Price Outlook 2017 report, written by DeHaan and fellow senior petroleum analyst
Gregg Laskoski.


West Texas Intermediate crude-oil prices CLG7, +1.36% —the U.S. benchmark—
posted a gain of about 8.7% for the month of December and a 45% return for 2016.


Both crude and retail-gasoline prices “have been on an OPEC upswing coming into
2017, and GasBuddy believes WTI oil prices, which traded above $53 a barrel on
Wednesday, can potentially climb above $60 if oil producers stick to the pact.


“The list of factors being mixed into the year forecast has never been larger,” said
DeHaan.


This year, the U.S. will also see Donald Trump’s administration take over and that is
“perhaps the most oil-friendly in some time,” he said.


Taking all of that into consideration, GasBuddy reached its average price projection of
$2.49 for the year.


National gasoline prices are likely to peak at $2.67 a gallon in May as the seasonal
switch to “summer-blend” gasoline as mandated by the Environmental Protection
Agency and the Clean Air Act prompts a spike in the spring, GasBuddy said.


Last year was “absolutely the year of cheap gas,” DeHaan said.


But “2017 will not be a repeat of 2016, with prices notably higher,” he said. “While we’re
unlikely to see record-setting highs, we will see more cities with gas prices rising to their
highest in three years.”


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.