According to the U.S. Energy Information Administration, the average American spent 4 percent of pre-tax income on gasoline in 2012, or $2,912 for the year. At this level, we are spending more on gasoline now than at any time in the past 30 years.
Small changes in the price of gasoline can have a huge impact on a personal budget, and, taken together, the aggregate affect of changes in the price of gasoline can have a significant impact on the overall economy. To play out the metaphor, consumer spending is the fuel that drives America’s economic engine. Fewer dollars spent at the pump means more dollars spent at local businesses or invested for retirement.
According to AAA’s Daily Fuel Gauge Report, the average price of a regular gallon of gasoline on July 15 was $3.613. This compares against $3.474 a week ago, $3.618 a month ago, and $3.396 a year ago.
The largest contributing factor to the price of gasoline is the price of crude oil. As of May, the EIA pegged 67 percent of the cost of regular gasoline on the price of crude oil, 14 percent of the cost on refining, 8 percent on distribution and marketing, and 12 percent on taxes.
Fuel taxes tend to remain relatively consistent over time (although they vary from region to region). Distribution, marketing, and refining costs do tend to vary — particularly when refining facilities need to be repaired or updated, or when storms knock out pipelines — but volatility in crude oil prices is the major factor driving changes in the price of gasoline.
With the fate of gasoline prices tied to the fate of oil, many observers have turned to the shale oil and gas boom in the U.S. for signs that a surge in supply will lead to a dramatic decline in prices. As it stands, the EIA expects average gas prices to trend lower in 2013, though not substantially. Prices are expected to fall from an average of $3.69 per gallon in 2012 to $3.63 per gallon in 2013.
For some context, the U.S. imported about 40 percent of the petroleum it consumed in 2012, the lowest level since 1991. This figure includes imports of both crude oil and petroleum products (gasoline, diesel fuel, heating oil, jet fuel, etc.). With this in mind, about 57 percent of the crude oil processed in U.S. refineries was imported.
This information makes U.S. oil production all the more significant. The EIA projects that domestic production of crude oil will increase from 5.7 million barrels per day in 2011 to 7.5 million barrels per day by 2019, when it is expected to peak. As a result, dependence on imports is expected to decline and prices are expected to follow.
The WTI spot average price is expected to decline from $94.65 per barrel in 2013 to $91.96 per barrel in 2014. Separate EIA projections see the price of gasoline falling to $3.48 per gallon in 2013 and $3.37 per gallon in 2014.
Here’s how the main U.S. indexes traded on Tuesday: