When OPEC+ announced in April that they will cut production by a combined 1.16 million barrels daily, it immediately raised concerns among retailers and consumers. With the memory of last year’s record-breaking pump prices still fresh in everyone’s minds, gasoline prices in the United States have become a hot and often heated topic of conversation. As consumers closely monitor the changing prices at the pump, retailers are concerned about raising prices to cover costs without scaring away consumers.
So what should we expect? Here we look at the factors that have brought us to this current moment, which helps us better predict where things might be heading.
Here’s what you need to know:
Last summer, the U.S. experienced exceptionally high gasoline prices, driven primarily by Russia’s invasion of Ukraine, which disrupted the global fuel market and subsequent sanctions that reduced Russia’s oil export capacity. That was compounded by pandemic-related supply chain issues that limited fuel extraction, refining, and distribution.
Though prices today are generally lower compared to this time last year, there are some factors causing prices to rise month-over-month for summer 2023:
It's likely that fuel prices this summer will be lower than in the summer of 2022. Despite these market forces, the U.S. Energy Information Administration (EIA) predicts that prices at the pump for the summer of 2023 will be 20% lower than last summer. This reduction in price can be attributed to a return to more long-run average prices, slower economic growth, and fears of a recession.
The graph below gives us a look back at the past two years and the total consumer demand for regular-grade gasoline in the U.S. It’s not surprising that demand for fuel remains relatively unchanged even as gas prices rise and fall—consumers, in general, are willing to pay higher prices in the short term, albeit begrudgingly, because gas is an inelastic good.
Although the demand for fuel does not change much as gas prices rise, consumers do, in fact, change where they decide to buy when sign prices go up.
Upside data shows that during elevated gasoline prices from June 2021 to June 2022, there was a 5.7% increase in consumers shopping around at different gas stations.
For Upside users specifically, there was a:
As fuel prices increased, we saw first-time and existing Upside users making more transactions at gas stations that partnered with Upside, as they sought out more value with every fill-up.
For every 1% increase in the sign price of regular gasoline, Upside sees a 2.2% increase in total transactions per Upside-participating station, and a 2.2% increase in Upside transactions from users that are new to the station.
We see that in the chart below, with the number of transactions from new Upside users in green, and existing Upside users at an average gas station in blue.
When gas prices rise, and consumers become more value-conscious, it puts pressure on fuel retailers to drop their sign prices to stay competitive. Doing that means sacrificing margin across all transactions, which presents long-term risks to their business if these low-margin periods are sustained.
Retailers working with Upside can provide the value consumers are looking for without reducing their sign price or introducing excessive promotions–thereby safeguarding their margins across all transactions.
By providing users with the value they need, Upside offers retailers the opportunity to profitably:
Partner with Upside to stay ahead of the competition this summer:
About the Author: Dr. Weinandy is a Research Economist at Upside, providing valuable insights into consumer spending behavior and macroeconomic trends for the fuel, grocery, and restaurant industries. With a Ph.D. in Applied Economics, his academic research is in digital economics and brick-and-mortar retail. He is currently writing a book on leveraging AI for business intelligence. Thomas lives in Grand Rapids, Michigan.