Crude oil prices during the month of February rose with the spread of political unrest in North Africa, including violent uprisings in Libya that have led to the shutdown of much of its oil production. The spot prices for West Texas Intermediate (WTI), a midcontinent crude oil benchmark, increased $15.52 (17 percent) from February 1 to March 8. During the same time period, Brent, a similar North Sea oil grade, rose $11.92 (12 percent). Increasing uncertainty about oil supply, not just from Libya but other countries in North Africa and the Middle East, as well, have quickly pushed oil prices to levels not seen since 2008.
EIA's latest Short-Term Energy Outlook, released yesterday, reflects this sudden and dramatic increase in crude oil prices. EIA's forecast of the 2011 average WTI crude oil spot price increased from $93 per barrel in last month's Outlook to almost $102 per barrel in the latest forecast. Because of the expected continuation of the large price discount for WTI relative to other world crudes (see This Week in Petroleum, Feb. 24, 2011), the increase in the forecast 2011 average cost of crude oil to U.S. refiners from last month's Outlook is larger, from $91 per barrel to $105 per barrel.
Retail gasoline prices surged by 38 cents per gallon in just the last three weeks to $3.52 per gallon. Because the pass-through of changes in wholesale gasoline prices to the retail level is lagged, pump prices would be expected to rise a further 10 cents per gallon to fully reflect the current wholesale price level even without considering any future wholesale price movements.
EIA expects regular-grade retail gasoline prices to average $3.71 per gallon during this year's summer peak driving season (June through August), 48 cents per gallon higher than forecast in last month's Outlook and 98 cents per gallon higher than last year (Figure 1). There is significant uncertainty surrounding the forecast, with current market prices of futures and options contracts for wholesale gasoline, considered in conjunction with the typical spread between wholesale and national average retail gasoline prices, suggesting about a 25-percent probability that the national monthly average retail price of regular gasoline could exceed $4.00 per gallon in the June through August 2011 period. On the other hand, there is a 10-percent probability that the national monthly average retail price over this period could fall below $3.00 per gallon. EIA further discusses price uncertainty in the Energy Price Volatility and Forecast Uncertainty supplement to the Outlook.
The projected increase in gasoline prices suggests that vehicle fueling costs for the average U.S. household will be about $700 higher in 2011 than they were in 2010. According to the 2009 National Household Travel Survey ( Transportation Energy Data Book, Tables 4.1 and 8.6), U.S. households drove an average 20,251 miles with an average vehicle fuel efficiency of 22.6 miles per gallon. Assuming no change in travel or average fuel economy, the increase in the average annual gasoline retail price (all grades) from $2.40 per gallon in 2009 to $2.83 per gallon in 2010 and a projected $3.61 per gallon in 2011 implies an increase in average annual household expenditures on gasoline from $2,150 in 2009 to $2,535 in 2010 and $3,235 in 2011.