Gasoline price forecast 2022-2030: Can price rebound on China’s returning demand?

In June 2022, gasoline prices have remained steady, despite a high record below. This is due to inventories piling up and demand denting, indicating a slowing economy.

Concerns regarding declining consumer interest, at a new record peak of $4.33 per gallon in early June, have decreased by approximately 47% as of January 2023, American unleaded gasoline blendstock (RBOB) futures traded on the Chicago Mercantile Exchange (CME).

The risk of a global recession has increased as central banks in developed economies have become adamant about raising interest rates to tame persistently high inflation rates.

The concerns about a tightening of monetary policy by central banks, which would dent demand and spur a recession, have caused the benchmark crude oil price, Brent international, to ease from around $139 per barrel (bbl) in January to approximately $79 per barrel. Additionally, high oil prices have started to impact consumption.

However, as restrictions on Covid-19 lift and demand for energy in China is expected to rebound, slumping demand from developed markets may provide some cushioning to help travellers on January 8, 2023.

In this article, we will examine the factors that are likely to drive the demand for gasoline and explore the forecasted price of gasoline beyond 2023.

Gasoline (USD/Gal) Price Performance, 2017-2022

After Russia’s incursion into Ukraine on 24 February, RBOB gasoline futures started the year 2022 on a high note, opening at $2.25 per gallon in early January and experiencing a continuous surge.

On March 8, the European Union, the United Kingdom, and the United States announced a ban on Russian energy imports as a sanction for the invasion of Ukraine, causing futures prices to surge to a new all-time high of $3.83 per gallon.

24% of the remaining funds are allocated for accounting, marketing, and distribution, with taxes accounting for the value of fuel.

Dominika Rzechorzek, an oil and gas analyst at Fitch Solutions, responded to Capital.Com’s inquiries by stating that the increase in the gasoline price benchmark is attributable to higher crude oil prices and expanding gasoline crack spreads due to a decrease in refining capacity.

The ongoing consequences of Russia’s incursion into Ukraine, which include supply interruptions caused by the conflict itself and the imposition of Western sanctions on Russia, continue to be the primary cause for the increase in oil prices. Following Russia’s invasion of Ukraine, prices have remained high.

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Rzechorzek states that the crack spreads for gasoline have increased to an average of $50.10 per barrel in May-June 2022, compared to $17.20 per barrel in 2021, due to a decrease in refining capacity. These spreads are commonly utilized to determine refining profits. Crack spreads refer to the disparities in prices between wholesale petroleum products and crude oil.

As per a statement on 3 November from ANZ Research’s senior specialist in commodities, Daniel Hynes, and commodities specialist, Soni Kumari, the demand for gasoline witnessed a significant surge following the easing of Covid-19 restrictions, eventually surpassing the levels observed in 2019, with a daily average of 10.4 million barrels per day (mb/d) by June.

Limited availability to counterbalance weak oil demand

The price of Brent crude oil has dropped by 7.4% year-to-date (YTD), reaching around $79.50 per barrel on January 6th. Over the past few months, both fuel and oil prices have decreased.

The association stated, “in 2000, the organization started gathering pricing information – their highest ever, as per the American Automobile Association (AAA), on 14 June, retail gasoline prices in the US have also decreased approximately 34.5% to $3.285/gal in January from a peak of $5.016/gal at the pumps.”

According to Fitch Solutions, the global oil supply will improve, but the markets will remain tight with bouts of high prices punctuated by moderate relief only through 2023.

In its December oil market report, the IEA forecasted that global oil consumption is expected to reach 101.6mb/d in 2023. However, due to economic headwinds, the growth in oil demand could slow down from 2.3mb/d in 2022 to 1.6mb/d in 2023.

The implementation of the G7 price limit occurs, since the prohibition of Russian crude imports by the European Union and the projected increase of 4.7 million barrels per day in 2022, as opposed to only 770 thousand barrels per day in 2023, are anticipated to decelerate the growth of crude oil supply on the supply front.

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According to research by ANZ, the removal of EU’s sanctions on Russian oil and the production cut by OPEC+ could remove 2.5 mb/d of oil supply from the market in the upcoming months.

China, the shining star in fuel consumption.

According to Fitch Solutions, total fuel consumption in developed markets is expected to rise at an annual rate of 0.5% in 2023. This growth in demand for gas and oil is anticipated to slow down due to high inflation and interest rates, as well as economic downturns in developed markets.

The company stated that, consistent with a more robust economic performance, developing economies will contribute the majority of the increase in fuel usage for 2023, in opposition.

China’s projected economic growth is expected to be faster than the global average, with a 5% increase in domestic gross product by 2023, according to Fitch Solutions. It is anticipated that the self-isolation measures due to Covid-19 will lead to a decline in global energy demand, but China is expected to experience a rebound in energy demand after three years of self-isolation.

The firm stated that China’s fuel consumption is forecasted to return strong in 2023, with an expected growth in line. The return of China’s fuel consumption is expected to be buoyed by increased exports of refined fuels, which will help global fuel consumption, and higher domestic consumption from the Chinese market’s demand for crude.

Xinhua media reported on January 8th that China will start conducting nucleic acid tests for Covid-19 on incoming international arrivals, and this will be announced in late December 2022. The distribution routes and the number of flights will gradually increase.

The border is being reopened in response to Beijing’s choice to relax Covid-19 limitations within the nation, subsequent to extensive protests against its stringent zero-Covid policies.

Gasoline price forecasts: Analyst outlook.

According to a note written by analysts at Fitch Solutions on 24 November, despite significant improvements, a strong fundamental outlook will result in low inventories worldwide and a persistent absence of new expansion in refining capacity. However, the expected growth in consumption in emerging markets is predicted to counterbalance the decreases in developed markets. The analysts also noted that although gasoline prices have decreased from their peaks, they are anticipated to remain higher than their historical averages.

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Because of the growing impacts of the wider macroeconomic downturn, the company mentioned that there are numerous hazards to its fuel price prediction, but they lean towards the negative side.

The inclusion of the company may result in significantly lower demand than anticipated in the nation, however, China’s shift away from its zero-Covid strategy will also have an effect on the consumption of gasoline.

Prediction for Gasoline Prices in 2023

According to the Energy Information Administration’s short-term outlook released in 2023, prices are expected to put upward pressure on limiting inventories, with retail fuel prices averaging $3.51 per gallon in 2023, down from $3.99 per gallon in 2022. This is the forecasted gasoline price for 2023, as per the EIA.

In its previous forecast issued in July, Fitch Solutions revised down its projection for the price of RBOB gasoline in 2023 to $2.70 per gallon, compared to the previous estimate of $2.90.

Trading Economics predicted that by the end of the first quarter of 2023, the economic data provider anticipates gasoline to be traded at $2.59 per gallon in its forecast for gasoline prices, as of 6 January.

Forecast for Gasoline Prices in the Long Run

Fitch Solutions and the EIA did not provide forecasts for the long-term prices of gasoline.

According to historical data, Investor Wallet’s algorithm-based price forecasting service can generate a longer-term forecast for RBOB gasoline futures, which is a good investment opportunity.

In January 2028, the price of gasoline is expected to increase by $4.770 and in December 2025, it is projected to rise by $3.673 per gallon, according to the forecast for the fuel service’s gasoline prices. On February 23, 2023, the forecasted gasoline price by Investor’s Wallet is $2.672 per gallon, and it is anticipated that the gasoline futures for RBOB will trade at this price.

In the extended period, the general worldwide economic perspective and unpredictability in crude oil costs led to a shortage of projected gasoline prices for 2030.

You should always consider all relevant market conditions, based on your own research. It is important to bear in mind that analysts’ predictions of gasoline prices can be wrong.

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