Kiplinger’s Economic Outlooks are written by the staff of our weekly Kiplinger Letter and are unavailable elsewhere. Click here for a free issue of The Kiplinger Letter or to subscribe for the latest trends and forecasts from our highly experienced Kiplinger Letter team.
With the summer travel season now in full swing, gasoline prices are holding remarkably steady. The national average price of regular unleaded has hovered close to $3.50 per gallon in recent weeks, which is down a bit from the spring peak. Today’s price is about a nickel cheaper than a month ago, and three pennies lower than at this time a year ago. It helps that oil prices have mostly traded in a narrow range, and demand for gasoline in the United States has been a bit weaker than normal for this time of year. Diesel, meanwhile, is averaging $3.85 per gallon, also little changed over recent weeks.
Barring a major supply disruption, we expect gasoline prices to remain close to their current $3.50 level. But that is a big “if,” considering that the current hurricane season is expected to be particularly active, and is already off to a strong start. There are no signs as of now that Hurricane Beryl will seriously disrupt refinery operations along the Gulf of Mexico. But if a more powerful storm makes landfall in this region, which is the heart of the U.S. refining sector, fuel prices could jump sharply. Unfortunately, we have several months to go before the end of hurricane season.
Crude oil continues to trade at an elevated level, with benchmark West Texas Intermediate recently near $83 per barrel. Provided the economy continues to hold up, and barring any major supply disruptions, we look for WTI to stay close to the $80 level this summer. Earlier concerns that OPEC and its partners might boost oil exports weighed on crude prices, but since then, the cartel has indicated that it will continue to curb its production to keep prices where they are.
Natural gas prices have cooled after a sharp rally in late spring. The heat wave that has engulfed much of the United States is spurring strong demand for gas, as power plants work hard to keep air conditioners running. Gas is the top fuel for generating power in the U.S., and recent data show that utilities are burning plenty of it to meet electricity demand. But domestic gas production is running even higher than consumption, allowing stockpiles of gas in underground storage to grow. Those stockpiles are about 19% higher than normal for this time of year, and that cushion of extra supply has held down gas prices. After recently jumping above $3 per million British thermal units as the heat wave arrived, the benchmark gas futures contract has fallen back to about $2.37 per MMBtu. If the hot weather continues across most of the country, demand for gas may eventually start eating into stockpiles and push prices higher. But for now, it appears that gas is going to struggle to mount a sustained rally.
