Tight Product Balance Pushes Up Product Spread (Spot Product – Crude Price)
- Gasoline inventories indicate how tight the gasoline product market is in any one region. When the gasoline market is tight, it affects the portion of gasoline price is the spread between spot product price and crude oil price. Note that in late 1998-and early 1999 spreads were very small when inventories were quite high.
- Contrast summers of 1998 or 1999 with summer 2000. Last summer’s tight markets, resulting low stocks and transition to Phase 2 RFG added price pressure over and above the already high crude price pressure on gasoline -- particularly in the Midwest.
- As we ended last winter, gasoline inventories were low, and the spread between spot prices and crude oil were higher than typical as a result.
- Inventories stayed well below average and the spread during the summer of 2000 averaged 15 cents per gallon – about 50% higher than the more typical 10 cents per gallon. (But keep in mind that the more typical spread has produced a very low return on investment for this industry.)
- In November and December 2000, as gasoline demand eased, prices relaxed and spreads returned to average levels -- only to rebound again in January and February as refineries began to undergo maintenance and the market watched the already low stock cushion erode further.
- In January, spreads averaged 16 cents compared to less than 5 cents in January 2000. This past February, spreads are slightly higher than last year -- averaging 12 cents. This is about 5 cents over historical average values.
- While March spreads dropped back for a time, April spreads shot up again as tank turnarounds from winter to summer drew down supplies and some refineries had trouble getting back on line following maintenance.
- Rising production and imports should begin to ease this situation.