The question frequently posed by the news media as we head into summer, the peak driving season, is whether or not retail consumers will be paying more than $4 per gallon for regular gasoline when they fill up their tanks. While the national average retail price for regular gasoline still hovers just under that mark at $3.94 per gallon on April 9, in many areas this question has already been answered. Consumers on the West Coast have been paying more than $4 per gallon, on average, since the end of February. Likewise, retail prices in the Chicago area have averaged more than $4 per gallon for the past month. But other areas have prices still below $4 per gallon, such as the Rocky Mountain region, where prices averaged $3.79 per gallon on April 9, as refiners supplying that area have access to discounted land-locked crude oil.
The U.S. Energy Information Administration's (EIA) April 2012 Short-Term Energy and Summer Fuels Outlook (STEO) is forecasting that the monthly average national retail price of regular gasoline during 2012 will peak at $4.01 per gallon in May. If this forecast is realized, May prices would reflect the third highest monthly nominal average price on record after July 2008 and June 2008. For the summer as a whole (April through September) prices are forecast to average $3.95 per gallon, which is 6.3 percent higher than last summer's average of $3.71 per gallon.
Movements in retail gasoline prices are driven primarily by changes in both crude oil prices and wholesale margins (the difference between the wholesale gasoline price and the average U.S. refiner acquisition cost of crude oil [RAC]), which can be seen in Figure 1. Taxes and retail distribution costs do not vary that much. Crude oil prices have been the major factor impacting gasoline prices in recent years and continue to be the driver in the STEO. Higher crude oil prices account for the entire increase in EIA's 2012 summer forecast compared to 2011, as wholesale margins are expected to be virtually unchanged this summer compared to last.
The market's expectation of uncertainty in monthly average gasoline prices is reflected in the pricing and implied volatility of futures and options contracts. New York Harbor reformulated gasoline blendstock for oxygenate blending (RBOB) futures contracts for June 2012 delivery over the 5-day period ending April 5, averaged $3.28 per gallon. The probability the RBOB futures price will exceed $3.35 per gallon (consistent with a U.S. average regular gasoline retail price above $4.00 per gallon in June 2012 is about 40 percent, while the probability it will exceed $3.85 per gallon (consistent with a U.S. average regular gasoline retail price above $4.50 per gallon) in June 2012 is about 5 percent.