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Drivers in the U.S. have probably seen the cheapest gasoline of the season. After falling to almost $3 per gallon, the national average price of regular unleaded has ticked up to $3.10. Expect more increases at the pump in the coming days and weeks. Gas prices typically fall during autumn and early winter, and then turn higher before spring arrives. Oftentimes, they peak around Memorial Day weekend. These are seasonal trends, not guarantees, but it looks like the pattern is playing out so far in 2025. Unless oil prices fall, we look for gas prices to keep rising, and approach $3.50 per gallon sometime this spring. Diesel fuel is also rising, with the national average now at $3.60 per gallon, up from $3.54 just a week ago.
Crude oil has already staged a sizable rally, with benchmark West Texas Intermediate recently hitting $80 per barrel for the first time in months. A few weeks ago, it was trading near $70. New sanctions on Russian oil exports levied by the departing Biden administration are likely one cause. Markets are also watching to see if the new Trump administration tightens sanctions on Iranian oil exports. Meanwhile, bitter cold weather in the U.S. is driving up demand for heating oil in areas like New England.
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We don’t expect oil prices to rise significantly more, but we do think oil will hold onto its recent gains, trading from about $75 to $80 per barrel this winter. That is high enough to keep pushing gasoline prices up in the near term and should ensure solid profits for most oil-producing companies.
Natural gas is also rallying due to protracted cold weather in the U.S. Gas futures contracts, which were languishing near $2 per million British thermal units for much of 2024, are now up to about $4 per MMBtu. Gas held in underground storage has fallen sharply due to strong heating demand, which is whittling down the glut that had depressed prices. With more cold weather in the forecast for the East and Midwest before any moderation, demand should remain strong for at least another week. If the winter continues to run colder than normal and gas supplies fall below their average level, gas futures could threaten $5 per MMBtu. But even if temperatures ease and heating demand declines, we don’t look for a return to the $2 range of last year
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