Gasoline's hit to Americans' wallets expected to hit a 20-year low

The Energy Information Administration (EIA) forecasts U.S. drivers' gasoline expenditures will reach a 20-year low this year, averaging less than 2% of disposable income, down from a 2.4% average over the last decade. This decline is attributed to steadily falling oil prices, with the U.S. benchmark near $62/barrel, leading to an estimated average gasoline price of $3.10/gallon this year, projected to drop to $2.90/gallon by 2026. The price reduction stems from increased OPEC+ oil output, with further declines possible if China reduces its strategic petroleum reserve purchases, offering significant economic relief to consumers.

Analysis

The Energy Information Administration (EIA) projects a significant tailwind for the U.S. consumer, with gasoline expenditures as a share of disposable personal income expected to fall below 2% this year, a 20-year low (excluding the pandemic-affected 2020). This represents a notable decline from the 2.4% average over the previous decade. The forecast is underpinned by a steady decline in crude oil prices, with the U.S. benchmark falling from $80 a barrel to near $62, which has translated into a projected average gasoline price of $3.10/gallon for the year—a $0.20 decline from the prior year. The EIA anticipates this disinflationary trend will continue, with prices potentially reaching an average of $2.90/gallon by 2026. This price weakness is primarily attributed to increased production from OPEC and its allies, a supply surge that has also slowed the growth of record-setting U.S. oil production, which hit 13.58 million barrels a day in June. A key forward-looking variable is Chinese demand for its strategic petroleum reserves; a halt in this buying could trigger a further drop in crude prices, though the timing of such a policy shift remains highly speculative.

Key Decisions for Investors

• The projected 20-year low in gasoline expenditures acts as a de-facto tax cut for consumers, supporting a more bullish stance on consumer discretionary sectors such as retail, restaurants, and travel.
• Given the bearish price outlook driven by high OPEC+ output, investors should re-evaluate exposure to upstream oil producers, as sustained price weakness to the $2.90/gallon level by 2026 would likely compress margins and pressure profitability.
• Monitor any signals related to a slowdown in China's oil purchasing for its strategic reserves, as this is identified as a key, albeit speculative, catalyst that could trigger a more significant step-down in global crude prices.