U.S. Gasoline Rises More Than 50 Cents Per Gallon - Expand Your Insight

U.S. Economy
U.S. Gasoline Rises More Than 50 Cents per Gallon

Stephen P. A. Brown looks at how gasoline prices reached their current heights and what we might expect in the next few months.

U.S. consumers have seen escalating gasoline prices at the pump—with the average U.S. price for regular unleaded reaching more than $2 per gallon for the first time in history. Spot gasoline prices rose more than 50 cents per gallon during the first five months of 2004 (see chart). Gains in crude oil prices contributed about half of the rise, but gasoline prices have risen much more sharply than crude—as gasoline demand surged and inventories were below normal. Severe winter weather pushed back the date at which the nation’s refiners could make their annual switch from their winter mix of products to their summer mix.

The futures market suggests that gasoline prices are at or near their highs. Barring an unforeseen increase in oil prices, gasoline prices are expected to moderate over the summer and fall but remain well above the historical relationship with crude oil in both seasons. Gasoline prices are expected to reestablish alignment with crude oil prices only as winter approaches.

Depending on the region of the country, consumers may see somewhat different changes in gasoline prices than those on the spot market. As the result of environmental regulations, gasoline markets have become regionalized—with different formulations in different regions of the country. Consequently, a shortage in one region cannot be met with shipments from another.

U.S. Gasoline and Oil Prices

Stephen P. A. Brown is director of energy economics and microeconomic policy analysis at the Federal Reserve Bank of Dallas.

SUGGESTED CITATION:
Brown, Stephen P. A. (2004), "U.S. Gasoline Rises More Than 50 Cents per Gallon," Federal Reserve Bank of Dallas Expand Your Insight, May 19, http://www.dallasfed.org/eyi/usecon/0405higas.html