April 8, 2008
Gasoline prices have risen substantially since the 1990s, driven mainly by crude oil price increases, which pushed up wholesale and retail gasoline prices. While crude oil prices, which are set in the world market, continue to be a major factor behind gasoline price increases, other factors impact the wholesale price of gasoline relative to crude oil. Changes in wholesale gasoline prices relative to crude oil are determined by the tightness between new gasoline supply (production and net imports) and demand. Demand varies seasonally and depends on economic factors. New gasoline supply is affected by refinery outages, refinery run decisions, and import variations. This report focuses on the major factors that drove the widening difference between wholesale gasoline and crude oil prices in 2007 and explores how those factors might impact gasoline prices in 2008.
In particular, and responsive to Section 804 of the Energy Independence and Security Act of 2007, the Energy Information Administration (EIA) reviewed and analyzed information that was available from commercial reporting services on scheduled refinery outages for 2008, and assessed the expected effects of those outages on the prices and supplies of gasoline. Much of this report focuses on a review of 2007 in order to establish a basis for determining how planned refinery outages and other factors might impact gasoline markets in 2008. EIA's future reports on planned refinery outages under Section 804 will evolve as additional information becomes available and EIA develops new methodologies for analysis.
Toward the end of 2006, crude oil prices began to decline, and with the transition from methyl tertiary butyl ether (MTBE) to ethanol completed and the end of the summer driving season drawing near, gasoline prices dropped even faster than crude oil prices. Both crude oil and gasoline prices bottomed out toward the end of January 2007, before reversing and climbing again. From late January through the middle of May 2007, average U.S. retail gasoline prices rose $1.05 per gallon, starting from $2.17 and peaking at $3.22 per gallon. Retail prices rose with wholesale (spot) gasoline prices. Crude oil, however, only rose about 30 cents per gallon during this same time period. Two primary supply factors contributed to the gasoline price increases over crude oil prices in the first half of 2007: large refinery outages in the United States and inadequate import increases to make up for the U.S. refinery production losses.