Analysis by Dr. Nancy Yamaguchi

 

Price Review January 2020-February 2021

This extra section provides a look at the longer-term trend in gasoline and diesel retail prices from January 6, 2020, to February 8, 2021. The impact of the COVID-19 pandemic is starkly visible. State-ordered stay-at-home orders began in March, beginning with California. In March and April, 43 state governors issued orders directing residents to stay at home except for essential travel. Non-essential businesses were closed. Fuel demand and prices plummeted.

Retail gasoline prices started the year 2020 at $2.58/gallon, the average price for regular gasoline of all formulations. Prices fell every week in March and April before hitting bottom at $1.77/gallon during the week of April 27. This was a drop of $0.81/gallon (31.2%) relative to the beginning of the year. Prices regained the $2-a-gallon level during the week of June 8. Prices hovered in the $2.10-$2.22/gallon range util November 2020. As of the current week ended February 8, 2021, gasoline prices have risen for 11 consecutive weeks, adding back $0.36/gallon. The average price of $2.26/gallon is only $0.05 cents below the January 2020 level, or 95% of its starting level. Gasoline product supplied during the week of January 29, 2021, was at 80% of its pre-pandemic level.

Diesel prices started 2020 at $3.079/gallon. However, unlike gasoline prices, diesel prices were already on a downward course. Prices fell for the next 19 weeks, bottoming out at $2.386/gallon during the week of May 18. This was a cumulative price drop of $0.693, or 22.5%. Diesel prices stagnated throughout spring and summer, descending to a new low point of $2.372/gallon during the week ended November 2. From that point, however, diesel prices have staged a sustained rally, rising now for 14 consecutive weeks. As of the current week ended February 8, diesel prices averaged $2.801, having regained $0.429/gallon. Prices are back at 91% of their January 2020 level. Diesel product supplied during the week ended January 29 was 105% of its pre-pandemic level.

 

Weekly Overview and COVID-19 Apparent Demand Response

The U.S. Energy Information Administration (EIA) released its weekly data on diesel and gasoline retail prices for the week ended February 8. Retail prices continued to rise for both fuels. Gasoline prices rose by 5.2 cents per gallon, while diesel prices rose by 6.3 cents per gallon. Retail prices for gasoline averaged $2.46/gallon. Diesel prices averaged $2.801/gallon. The COVID-19 pandemic caused severe demand destruction, which has not been fully reversed. Nonetheless, market optimism has been high, and crude oil prices have regained their pre-pandemic levels. COVID-19 cases at last are declining from their peaks. The Center for Disease Control (CDC) reports that approximately 42.4 million doses of vaccine had been administered as of February 8. A third Federal relief package also is expected. Futures prices for crude oil and products are rising. This argues for continued increases in retail fuel prices.

Retail diesel prices have now risen for the past fourteen weeks. Retail gasoline prices have risen for eleven consecutive weeks.

The EIA publishes weekly “product supplied” data as its proxy for demand. These data show gasoline demand crashing from 9,696 barrels per day (kbpd) during the week ended March 13 to just 5,065 kbpd during the week ended April 3, a huge hit of 4,631 kbpd in just four weeks. That was the low point. Demand thereafter trended generally up until it reached 8,608 kbpd during the week ended June 19. Since then, demand has cycled up and down, but it has never regained its March 13 level. Demand has been in the range of 7,400-8,900 kbpd. Gasoline product supplied rose to 8,128 kbpd during the week ended December 25, then dropped sharply to 7,441 kbpd during the week ended January 1, 2021. Demand recovered to 7,770 kbpd during the week ended January 29. The EIA points out that “product supplied” is not a precise measure of demand, but these data provide the most up-to-date numbers publicly available.

Diesel demand dropped sharply in response to COVID-19. It began to recover in fits and starts. Diesel demand stagnated at first, recovered moderately, then began to vacillate between approximately 3,000 kbpd and 3,800 kbpd. The EIA reported that distillate fuel oil demand plunged by 1,256 kbpd between the week ended March 13 and the week ended April 10, slumping from 4,013 kbpd to 2,757 kbpd in a four-week period. Demand has been cycling up and down, rising strongly to 3,958 kbpd during the week ended August 21, then retreating to bottom out at 2,809 kbpd during the week ended September 11. This was the lowest reported level since the week ended April 10, reinforcing the concern that demand would not fully recover to pre-COVID-19 levels this calendar year. The EIA data for the week ended January 1, 2021, showed diesel demand plunging to 2,941 kbpd. Diesel supplied bounced back to 4,198 kbpd during the most recent week ended January 29.

It now has been 47 weeks since the week of March 13, before widespread COVID-19 lockdowns caused demand to collapse. As of the week ended January 29, 2021, gasoline product supplied was 80% of its pre-pandemic level. Diesel product supplied was 105% of its pre-pandemic level.

For the week ended February 8, retail prices for gasoline rose by 5.2 cents/gallon. Retail prices for diesel rose by 6.3 cents/gallon.

The national average price for gasoline was $2.461/gallon. This price was 4.2 cents/gallon above the price for the same week one year ago. This marked a major change, since until the price upswing of the past three months, prices had been significantly below their levels of last year. Approximately 11 months ago in February 2020, retail prices for gasoline were higher than they had been in February 2019. The COVID-19 pandemic caused U.S. average gasoline prices to fall below $2/gallon throughout the months of April and May, regaining this average level in June. Gasoline prices have now risen for eleven consecutive weeks, and they are back above their pre-pandemic levels.

Diesel prices remain below their levels of last year, but the price gap is narrowing. On a national basis, the retail price for diesel averaged $2.801/gallon—10.9 cents/gallon lower than the price in the same week last year.

 

Futures Prices and Retail Price Outlook

During the week February 1 to February 5, West Texas Intermediate (WTI) crude oil futures prices rose strongly by $4.47 per barrel (8.6%.) WTI futures closed the week at $56.85 a barrel. Recall that on October 30th, the market had slumped to close at $35.79 a barrel, the lowest level in approximately five months. As of Tuesday February 9, 2021, WTI crude futures prices are falling. However, prices are above their pre-pandemic levels, with contracts trading in the range of $57.50-$58.62 a barrel. Prices above $58 a barrel have not been seen since January 2020, over one year ago.

During the week February 1 to February 5, gasoline futures prices rose strongly by 10.08 cents per gallon (6.5%.) Diesel futures prices jumped by 11.3 cents per gallon (7.1%.) Futures prices are falling today, but the gains over the past week still have been significant. While the relationship between futures prices and retail prices is not immediate or one-for-one, the recent gains in futures prices suggests that retail prices will rise again in the coming week.

 

Retail Diesel Prices

The week ended February 8 brought a 6.3 cents per gallon increase in the retail price for diesel to reach an average price of $2.801/gallon. Prices rose in all PADDs. The national average price for the week was 10.9 cents/gallon below where it was during the same week last year. Retail diesel prices have risen for fourteen consecutive weeks. However, looking at 2020 in its entirety, prices dropped 44.4 cents per gallon between the first week of January and the last week of December.

In the East Coast PADD 1, diesel prices rose by 5.4 cents to reach an average of $2.845/gallon. Within PADD 1, New England prices rose by 4.4 cents to average $2.840/gallon. Central Atlantic diesel prices increased by 4.1 cents to average $3.005/gallon. Lower Atlantic prices rose by 6.5 cents to average $2.740/gallon. PADD 1 prices were 11.7 cents/gallon below their levels for the same week last year.

In the Midwest PADD 2 market, retail diesel prices rose by 7.2 cents to average $2.748/gallon. Prices were 2.8 cents below their level for the same week last year. PADD 2 joined PADD 3 during the week ended June 17, 2019, in having diesel prices fall below $3/gallon. Prices subsequently fell below $3/gallon in PADD 4 and PADD 1. Finally, PADD 5 prices also slid below the $3/gallon mark, though this reversed in November.

In the Gulf Coast PADD 3, retail diesel prices rose by 6.6 cents to average $2.566/gallon. PADD 3 continues to have the lowest diesel prices among the PADDs, currently 23.5 cents below the U.S. average. Prices were 10.9 cents below their level for the same week in the previous year.

In the Rocky Mountains PADD 4 market, retail diesel prices rose by 5.8 cents to average $2.699 gallon. PADD 4 prices were 19.6 cents lower than for the same week in the prior year.

In the West Coast PADD 5 market, retail diesel prices rose by 5.9 cents to average $3.258/gallon. PADD-5 is the only PADD where retail diesel prices are back above the $3 per gallon level, though prices currently are rising across the country. PADD 5 prices were 22.3 cents below their level from last year. PADD 5 prices excluding California rose by 5.6 cents to average $2.897 gallon. This price was 20.1 cents below the retail price for the same week last year. California diesel prices rose by 6.1 cents to average $3.558/gallon. Until the week ended June 24, 2019, California had been the only major market where diesel prices were above $4/gallon, where they had been for nine weeks. California prices retreated below $4/gallon from July through October, rose above $4/gallon again during the first three weeks of November, then weakened until June and July 2020. California diesel prices were 22.6 cents lower than they were at the same week last year.

 

Retail Gasoline Prices

The COVID-19 pandemic continues to have a huge impact on the U.S. gasoline market. Retail prices for gasoline dropped below $2 a gallon in April, and they remained there throughout April and May, then into early June before finally climbing back to the $2/gallon level during the week ended June 8. Until the pandemic, it had been over four years since the average retail price for gasoline had been below the $2/gallon mark. With the phased re-opening of the economy, demand began to rise, as did prices. Unfortunately, so did coronavirus infections. Gasoline prices mainly trended down in the autumn of 2020. December brought a price recovery, which now has been sustained for eleven consecutive weeks. The current week brought a price increase of 5.2 cents.

During the current week ended February 8, average retail prices for gasoline rose by 5.2 cents to average $2.461/gallon. Prices rose in all PADDs. Retail gasoline prices for the current week were 4.2 cents per gallon higher than they were one year ago.

Looking back at historic prices, gasoline prices hit a peak of $2.903/gallon during the week ended October 8, 2018. Prices then slid downward for 14 weeks in a row, shedding a total of 66.6 cents per gallon. In the next 17 weeks, prices marched back up by 66 cents/gallon. Prices came very close to the peak they hit in early October 2018. However, the months of May and the June 2019 brought an easing of prices amounting to 23.3 cents per gallon. The week ended July 1 reversed that downward trend and sent prices up once again. The COVID-19 pandemic caused a price collapse, but prices began to climb back up in May, June, and early July. The second half of July brought a modest easing of prices, which levelled off in mid-August and began to reverse course. September and October brought another price retreat, in keeping with the end of summer driving season, and compounded by the pandemic. The current sustained rally is pulling gasoline prices back up, and prices are now above their levels of one year ago.

For the current week ended February 8, East Coast PADD 1 gasoline retail prices rose by 6.0 cents to average $2.438/gallon. This week’s average price was 6.9 cents/gallon above where it was during the same week last year. Within PADD 1, New England prices rose by 4.6 cents to average $2.446/gallon. Central Atlantic market prices rose by 4.9 cents to average $2.589/gallon. Prices in the Lower Atlantic market increased by 6.8 cents to average $2.231/gallon.

In the Midwest PADD 2 market, retail gasoline prices rose by 4.8 cents to average $2.362/gallon. PADD 2 prices for the week were 10.2 cents/gallon higher than they were for the same week last year.

In the Gulf Coast PADD 3 market, gasoline prices rose by 5.5 cents to average $2.163/gallon. During the week ended March 16, PADD 3 was the first region where retail prices fell below the $2/gallon level. It was joined subsequently by PADD 2, then by PADD 1, and then by PADD 4. PADD 3 was the last PADD remaining where prices were below $2/gallon. PADD 3 usually has the lowest average prices among the PADDs. PADD 3 prices for the week were 7.6 cents/gallon higher than for the same week last year.

In the Rocky Mountains PADD 4 market, gasoline pump prices rose by 4.5 cents to average $2.329/gallon. This week’s PADD 4 prices were 17.8 cents/gallon lower than at the same time last year.

In the West Coast PADD 5 market, retail gasoline prices rose by 4.3 cents to average $3.001/gallon. PADD-5 is the first PADD where gasoline prices are back above the $3 a gallon mark. PADD 5 typically has the highest retail prices for gasoline. Prices this week were 14.4 cents/gallon lower than last year’s price. Prices excluding California rose by 4.3 cents to average $2.638/gallon. This was 25.7 cents/gallon below last year’s price. California prices rose by 4.4 cents during the current week to average $3.316/gallon. California had been the last state where gasoline prices had remained above the $3/gallon line, but this changed the week ended March 30. On Thursday March 19, 2020, California led the U.S. by ordering a statewide shelter-in-place to combat the spread of COVID-19. This order affected approximately 40 million people, and other states followed suit. California gasoline prices gradually crept back up above the $3-a-gallon level in July. California retail gasoline prices were 5.0 cents per gallon below their levels from the same week last year.