American consumers may finally catch a break at the gas pump in 2026. The U.S. Energy Information Administration's latest forecast projects national average gasoline prices will drop below $3 per gallon this year—a roughly 20-cent decline from 2025 levels that could provide welcome relief for household budgets still strained by years of elevated prices.

The Price Forecast

According to the EIA's January 2026 Short-Term Energy Outlook, U.S. gasoline prices are expected to average just over $2.90 per gallon this year. This represents a meaningful decline from 2025's average of approximately $3.10 and marks the lowest annual average since the pandemic disruptions of 2020.

The forecast improvement stems directly from expected declines in crude oil prices. The EIA projects Brent crude will average $56 per barrel in 2026—19% below 2025 levels—while West Texas Intermediate is forecast at $52 per barrel. Lower input costs translate relatively quickly to retail gasoline prices.

"We expect oil prices will decline in 2026 as global oil production exceeds global oil demand, causing oil inventories to rise. This supply-demand imbalance should flow through to consumer gasoline prices with a modest lag."

— U.S. Energy Information Administration, January 2026 STEO

Why Oil Is Getting Cheaper

The fundamental driver of lower prices is a building global surplus. The EIA expects global liquid fuels production to increase by 1.4 million barrels per day in 2026, led by production growth from OPEC+ nations. Meanwhile, demand growth continues to moderate as efficiency improvements and the gradual adoption of electric vehicles reduce the world's appetite for petroleum.

Notably, U.S. crude production is forecast to decline for the first time in years. After reaching a record annual average of 13.6 million barrels per day in 2025, domestic output is expected to decrease by less than 1% this year as lower prices slow drilling activity. However, non-OPEC production growth elsewhere more than compensates.

"We're entering a period of structural oversupply," explained Daniel Morrison, senior petroleum analyst at OPIS. "OPEC+ is holding significant production off the market, but even that restraint isn't enough to balance supply and demand at current price levels."

What It Means for Your Wallet

For the average American household driving approximately 12,000 miles per year in a vehicle averaging 25 miles per gallon, a 20-cent per gallon decline in gasoline prices translates to roughly $96 in annual savings. While not transformative, this relief arrives at a meaningful time.

Gasoline prices act as a particularly visible inflation indicator for consumers. When prices at the pump fall, it creates a psychological sense of improving economic conditions that often exceeds the actual dollar impact. Conversely, rising gas prices tend to sour consumer sentiment disproportionately to their share of household budgets.

The EIA's forecast suggests regional variations will persist. Prices tend to be higher on the West Coast due to unique fuel specifications and refinery constraints, while Gulf Coast and Midwest states typically enjoy lower prices. California drivers, in particular, may continue seeing prices above the national average due to the state's distinct fuel requirements and tax structure.

Inflation Implications

Lower energy prices could provide a modest tailwind for the Federal Reserve's inflation fight. Energy costs, including gasoline, represent a meaningful component of both the Consumer Price Index and the Personal Consumption Expenditures price index that the Fed targets.

However, economists caution against overstating the impact. Core inflation measures, which exclude volatile food and energy prices, are what Fed officials focus on for monetary policy decisions. And while cheaper gas helps headline inflation readings, it doesn't address the stickier service-sector inflation that has proven resistant to rate increases.

"Lower gas prices are welcome, but they're not going to change the Fed's calculus on rate cuts," noted Patricia Simmons, economist at Pantheon Macroeconomics. "The inflation problem is in shelter, medical services, and other core categories—not energy."

Risks to the Forecast

Several factors could push gasoline prices higher than the EIA projects:

  • Geopolitical disruptions: Conflict involving major oil producers—particularly in the Middle East—could spike prices quickly, as this week's Iran-related volatility demonstrated
  • Refinery outages: Unexpected shutdowns at major refineries can create regional supply crunches
  • Hurricane season: Gulf Coast refining capacity remains vulnerable to tropical storms
  • OPEC+ policy shifts: If the cartel decides to cut production more aggressively, prices could stabilize or rise

Conversely, prices could fall even further if demand weakness exceeds expectations or if OPEC+ unity fractures, leading to competitive production increases.

The Electric Vehicle Factor

Lower gasoline prices create an interesting dynamic for electric vehicle adoption. On one hand, cheaper gas reduces the fuel cost savings that make EVs economically attractive. On the other hand, the EV transition is increasingly driven by regulatory mandates, consumer preference for new technology, and environmental considerations rather than pure economics.

Industry analysts note that gasoline price volatility—rather than the absolute level—may matter most for EV adoption. Consumers who have experienced price spikes may prefer the price stability of electricity even if gasoline is temporarily cheap.

Looking Ahead

The EIA's forecast extends into 2027, projecting continued price moderation. Brent crude is expected to average $54 per barrel next year, while WTI falls to $50. If these projections hold, American consumers could enjoy an extended period of relatively affordable fuel.

For now, drivers can take some comfort in the forecast trajectory. After years of elevated prices that strained budgets and soured economic sentiment, sub-$3 gasoline would be a welcome development—even if geopolitical events could alter the picture at any moment.