Gasoline and diesel price forecast - outlook for Europe and the world
Crude oil prices are the main driver of retail fuel prices in the long-run (months and years). In the short run, exchange rates, tax policy, regulations, supply disruptions, and seasonal factors also play a role but these influences are minor compared to crude oil.
Note that every 10 percent change in oil prices leads to about 3 percent change in fuel prices in Europe and about 7 percent change in the U.S. In principle, the higher the fuel taxes, the smaller the change in fuel prices for a given change in oil prices. These numbers are the same for gasoline and diesel. So, if you are in a country with high fuel prices (see the global rankings for gasoline and diesel), an increase/decrease in oil prices from, say, 60 to 70 USD per barrel would lead to about 5 percent increase/decrease in fuel prices. If you are in a country with about average fuel prices, the change would be double - about 10 percent. If you are in a country with low fuel prices, that usually means that the government regulates or subsidizes prices. Then, oil prices have less direct impact but eventually policies adjust and fuel prices come in line with the crude oil prices.
Based on these observations and the latest oil price outlook, the first chart shows that the world average gasoline price is expected to increase in the coming months reaching a level of 1.03 USD per liter in February 2021. This is a weighted average of the retail gasoline prices in 100 countries that represent over 90 percent of the world petroleum consumption.
For Europe, gasoline prices are also expected to chnage upwards to a level of 1.25 EUR per liter in 2021. The average is based on 36 European countries including Germany, the UK, France, Italy, Spain, and Russia.
For diesel fuel, the average European prices are expected to be at a level of 1.15 EUR per liter in February 2021.
How do we compute these numbers
For each of the countries in our database, we estimate a statistical model where the retail prices of 95-octane gasoline and diesel fuel are explained by the Brent crude oil price, the USD exchange rate, seasonal factors, and a time trend that reflects inflation in the marketing and distributions costs as well as tax and policy changes. The models account for over 95 percent of the retail fuel price changes.
We use the estimation results from the models to calculate the predicted retail prices of gasoline and diesel fuel given certain assumptions about the future values of crude oil prices and the exchange rates. For crude oil prices we use data from the futures contracts at the NYMEX.
We use weekly data but we also check our estimations with monthly and quarterly averages to confirm the estimation results. The time period used in the models covers January 2005 to now but we also check our estimates using sub-periods of relative calm in the crude oil market as well as periods of high volatility. We also check the estimations for periods of general upward and downward trends in the crude oil prices. We can provide more detail on our methodology upon request.