Gas prices will probably be significantly cheaper overall next year. Yet the national average could still climb back above the $4-a-gallon threshold as soon as May, according to GasBuddy projections shared exclusively with CNN.
The good news is that GasBuddy, an app that tracks fuel prices, doesn’t expect a repeat of this year’s wild swings that at one point sent gas prices above $5 a gallon for the first time ever. That spike set off recession alarm bells, worsened inflation and crushed consumer confidence.
The national average for regular gas, a metric closely watched by Wall Street, Main Street and even the White House, is expected to drop to $3.49 a gallon in 2023, down roughly 50 cents from the average this year, according to GasBuddy.
That cooldown could prove significant, translating to families spending an average of $277 less on fuel for the year. If that holds true, total US gasoline spending would drop by about $55 billion, according to the forecast.
The bad news is GasBuddy expects the national average to climb from $3.10 a gallon today to a range of $3.52 to $4.05 in May as Americans hit the roads.
“2023 is not going to be a cakewalk for motorists. It could be expensive,” Patrick De Haan, head of petroleum analysis at GasBuddy, told CNN. “The national average could breach $4 a gallon as early as May – and that’s something that could last through much of the summer driving season.”
Gas prices typically rise heading into the summer as Americans hit the road more during the warmer weather. In addition to the pick-up in demand, refiners switch over to summer-grade gasoline, which is designed to improve air quality and costs more to produce.
The GasBuddy forecast calls for the daily national average to top out at as high as $4.25 a gallon in August before dropping towards $3 a gallon by the end of the year.
The federal government has issued similar projections to GasBuddy’s.
Earlier this month, the Energy Information Administration (EIA) said the national average is expected to average about $3.50 a gallon in 2023 as refineries continue to ramp up production of gasoline.
‘Curveballs coming from every direction’
The past year shows how difficult it can be to predict energy prices.
Virtually no one expected the spike to $5.02 a gallon in June. But everything changed after Russia invaded Ukraine, raising the specter of severe supply crunches.
Beyond the war, energy markets were rocked by a range of major forces, including China’s Covid-19 lockdowns, recession fears, super-sized interest rate hikes from the Federal Reserve and the White House’s unprecedented use of the Strategic Petroleum Reserve.
“Basically, curveballs coming from every direction,” De Haan said, describing the ups swings in energy markets. “Extreme amounts of volatility. I don’t think we’ve ever seen such an amount of volatility as we saw this year.”
The 2022 experience means forecasts about 2023 should be taken with a grain of salt.
Vladimir Putin and Jerome Powell will influence prices in 2023
Prices for the next 12 months will be driven by developments in the war, the Federal Reserve’s fight against inflation, OPEC policy, China’s Covid restrictions, a potential economic recession and perhaps other forces that are not even known at this point.
In its report, GasBuddy notes there is a “high level of uncertainty” in 2023, “making an accurate forecast very challenging.”
For instance, De Haan said a US recession would hurt demand for energy and likely drive prices lower than the $3.49 average forecast by GasBuddy.
On the other hand, a major hurricane or surprise refinery shutdowns could translate to higher-than-expected prices.
Still, quite a bit of uncertainty remains.
“This is probably the second hardest forecast,” De Haan said.
The hardest? That was last year.
Why gas prices are dropping
In December 2021, before Russia amassed troops at Ukraine’s border, GasBuddy projected the national average for gas would be $3.41 a gallon in 2022. That proved to be optimistic as prices took off after the invasion.
But in March 2022, GasBuddy revised its call to account for the war and projected the national average would be $3.99. That forecast was spot on, with gas prices on track to end the year at roughly that level, or perhaps a few pennies lower.
After hitting $5 a gallon in June, gas prices have been on a remarkable decline, especially lately. The national average is now about 20 cents below the same period of a year ago, according to AAA.
The plunge to 18-month lows has been driven by a range of factors, including the return of refineries sidelined earlier this year, recession fears, record-setting releases of emergency oil by the Biden administration and the fact that Russia’s supply of oil has not been severely damaged by the war in Ukraine and Western sanctions.
Gas prices are not expected to return to $5 this summer – although GasBuddy isn’t ruling that out.
“It’s not impossible,” De Haan said, “merely improbable at this moment.”