Gas Prices Expected to Fall Through 2025–26 as Oil Costs Decline—What It Means for Consumers

Key Points

• It seems likely that gasoline prices are not falling as much as oil prices due to several factors.
• Research suggests refinery margins, seasonal fuel blends, and economic uncertainty from tariffs are key reasons.
• The evidence leans toward controversy, as reduced U.S. production and OPEC+ decisions also play a role, affecting supply and demand dynamics.

Current Situation

On June 24, 2025, oil prices have been sinking, but gasoline prices at the pump are not dropping as much, leaving many wondering why.

Reasons for the Gap

• Refinery Margins and Capacity: Even with lower oil prices, refineries are making more profit per gallon, and reduced U.S. refinery capacity limits gasoline production, keeping prices higher.
• Seasonal Factors: The switch to summer-blend fuel, which is costlier, is raising prices during warmer months, counteracting oil price drops.
• Economic and Policy Factors: Tariffs and OPEC+ production increases create uncertainty, affecting oil demand and supply, while reduced U.S. production due to low prices limits gasoline supply.
• Lag and Other Costs: It takes time for lower oil prices to reflect at the pump, and factors like inflation, taxes, and distribution costs add to gasoline prices.

Market Implications

This gap means consumers might not see immediate savings at the pump, despite falling oil prices, highlighting the complex relationship between oil and gasoline markets.

Survey Note: Detailed Analysis of Why Gasoline Prices Aren’t Tumbling Along with Sinking Oil

On June 24, 2025, at 01:35 PM PDT, oil prices have been experiencing a notable decline, yet gasoline prices at the pump are not falling as significantly, prompting questions about the disconnect. This analysis, informed by recent data from the U.S. Energy Information Administration (EIA), NPR, and NerdWallet, provides a comprehensive overview of the reasons behind this gap, the market dynamics, and broader implications for consumers and the energy sector.

Background and Context

Oil prices, a major component of gasoline costs, have been influenced by various factors, including geopolitical tensions, OPEC+ production decisions, and recent tariff announcements by President Trump. Despite these declines, gasoline prices have not followed suit, reflecting a complex interplay of supply, demand, and market structures. Recent reports, published within the last few months, provide insights into this phenomenon, ensuring timeliness and relevance for the current date.

Detailed Reasons for the Gap

1. Increasing Refinery Margins and Capacity Constraints:
   • One primary reason is the widening of refinery margins, or crack spreads, which is the difference between wholesale gasoline prices and crude oil prices. The EIA expects crack spreads to be wider in 2025 than in 2024, narrower than in 2023 and 2022, which offsets the downward pressure from falling crude oil prices. Specifically, the EIA projects gasoline prices to decrease by only 11 cents per gallon in 2025 and 18 cents per gallon in 2026, despite lower crude oil costs .
   • Additionally, U.S. refinery capacity has decreased due to closures, such as LyondellBasell’s Houston refinery and Phillips 66’s Los Angeles refinery. This reduced capacity limits the ability to produce more gasoline, keeping prices higher despite lower crude oil costs .
2. Seasonal Factors and Fuel Blends:
   • Seasonal changes significantly affect gasoline prices. The switch to summer-blend gasoline, required from May 1 to September 15, is more expensive to produce than winter-grade fuel, typically raising prices during warmer months. NerdWallet notes that this seasonal factor can counteract the effect of falling oil prices, keeping pump prices elevated . For example, even though oil prices have dropped, the need for summer-blend gasoline can maintain higher prices.
3. Economic Uncertainty from Tariffs and Policy Impacts:
   • Tariffs imposed by President Trump have created economic uncertainty, potentially slowing global economic growth and affecting oil demand, which is tied to economic prosperity. NPR reports that Rystad Energy noted a trade war could halve the expected growth in Chinese oil demand by 2025, influencing oil prices and, consequently, gasoline prices . This uncertainty can delay the pass-through of lower oil prices to gasoline.
4. OPEC+ Production Decisions and Supply Dynamics:
   • OPEC+ has announced production increases, unwinding previous cuts, which has contributed to oil prices falling to four-year lows. However, some OPEC+ members are exceeding their quotas, which could pressure compliance and affect the overall supply. NPR details that this increase, coupled with Trump’s request for more production, has led to prices touching lows, but the impact on gasoline prices may be moderated by other factors like refinery margins .
5. Impact on U.S. Producers and Production Limits:
   • Low oil prices, with crude oil dropping 25% since January and West Texas Intermediate falling from $80 to under $60, are making new wells unprofitable, likely peaking U.S. production this quarter. This reduction in domestic production capacity can limit the supply of gasoline, preventing prices from falling as much as oil prices, as noted by NPR .
6. Regional and Distribution Factors:
   • In certain regions, like the Rocky Mountains, gasoline prices are expected to remain flat in 2025 due to steady population growth and constrained infrastructure, which limits the ability to increase supply. The EIA highlights that regional factors can keep prices stable despite falling oil costs .
7. Lag in Price Reflection and Market Dynamics:
   • There is a lag in how quickly gasoline prices at the pump reflect changes in oil prices. NerdWallet explains that gas prices reflect costs from weeks or months prior, not daily market conditions, slowing price adjustments . Additionally, market dynamics, such as competition among retailers and supply chain shocks, can cause asymmetric pass-through, where gasoline prices adjust more slowly to decreases in oil prices than to increases.
8. Inflation, Supply-Chain Disruptions, and Gas Tax Hikes:
   • Other economic factors, such as inflation, supply-chain disruptions, and gas tax hikes, can contribute to higher gasoline prices independently of oil prices. NerdWallet notes that these factors, alongside oil costs, can keep gasoline prices elevated, with state gas tax variations adding to the cost .

The table above summarizes the reasons, details, and relevant data, highlighting the complexity of the relationship between oil and gasoline prices.

Broader Context and Implications

This gap between oil and gasoline prices has significant implications for consumers, who may not see immediate savings at the pump despite falling oil prices, and for energy producers, who face reduced profitability due to low oil prices. The controversy lies in the balance between short-term consumer benefits and long-term industry impacts, with OPEC+ decisions and tariff policies adding layers of uncertainty. For investors, monitoring refinery margins, seasonal trends, and policy developments is crucial, as these factors can influence energy sector performance and consumer spending patterns.

This analysis, informed by multiple reliable sources, provides a detailed snapshot of why gasoline prices aren’t tumbling along with sinking oil on June 24, 2025, offering insights for stakeholders in the energy market.

Key Citations

• U.S. retail gasoline prices to decrease in 2025 and 2026 with lower crude oil price
• Are Gas Prices Going Down?
• Why oil prices are falling and what it means for the economy