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This Week In Petroleum
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Released on June 26, 2002
(Next Release on July 3, 2002)

Flat Line
With comatose U.S. retail gasoline prices over the last 11 weeks, many have proclaimed the death of any sharp upward gasoline price movement this summer. However, with summer vacations just beginning in many parts of the country, and both the July 4th and Labor Day holidays still to come, it may be too early to declare that gasoline prices have flat-lined.

That said, gasoline prices have been remarkably steady so far this season. From mid-April to the present, the average price for regular gasoline in the United States has varied by only 2.9 cents per gallon. This compares to a 17.5-cents-per-gallon variance last year and 26.1 cents per gallon in 2000 over the similar 11-week periods in those years. With the experience of 2000 and 2001 still fresh in the minds of many consumers and oil market analysts, many have been shocked by this year’s stability. Several factors have kept prices from rising sharply so far this summer.

First, gasoline production and imports have been up this year, helping to build inventories prior to the start of the season. At the end of April, total gasoline inventories (including blending components) were 216.8 million barrels, compared to the 200.0 million barrels at the end of April last year, and 206.3 million barrels at the end of April 2000. In fact, gasoline inventories at the end of April this year were the second highest level (exceeded only by the 218.3 million barrels at the end of April 1999) for that time of year since 1994. This level of inventory provides an extra cushion of readily available supply should anything go wrong. Of course, this is the second major factor - there have been no major refinery or pipeline problems this year. Unlike the last two years, there has been no major disruption in the gasoline infrastructure so far this season. Indeed, there has been an improvement in the infrastructure, with the opening of the Centennial Pipeline recently, which has helped supply the Midwest portion of the country.

Perhaps almost as surprising as how steady gasoline prices have been is why they haven’t fallen, given additional available supply. Of course, the answer to this is that demand has been relatively strong. For most of April, May, and June, gasoline demand has averaged more than 1 percent higher than comparable periods last year. This increased demand has absorbed enough of the increase in supply to keep prices flat. However, should demand increase as expected, it will need to be supplied either from additional refinery production (imports are already at historically high levels and are not likely to increase) or from drawdowns of inventories. With inventories for other refined products relatively high, and with crude oil prices possibly increasing later this summer, suggesting continued pressure on refinery margins, significant increases in the production of gasoline may not occur. This would leave inventories as the main source of supply to feed additional demand. While there are ample supplies to satisfy increases in demand for the short-term, as inventories fall, there could be increased pressure on gasoline prices later this summer. Ultimately, the level of gasoline demand in the next month or two will help determine if any significant increase in gasoline prices may occur. But for now, it appears that it may still be too early to look at the flat line shown for gasoline prices these past 11 weeks and determine that the gasoline season is, in the words of John Cleese, “No more.”

U.S. Retail Gasoline Price Creeps Up 0.6 Cent
The retail price for regular gasoline rose 0.6 cent last week, ending at 138.4 cents per gallon as of June 24. This price is 15.4 cents per gallon lower than last year. Prices were mostly up throughout the country, with the largest increase occurring in the Rocky Mountain region. Price decreases were seen in New England, the Central Atlantic, and the Gulf Coast. Prices have remained relatively flat over the past eleven weeks, although prices have risen by almost a cent over the last two weeks. Prices could possibly rise in the next few weeks, if gasoline demand increases, while supplies lag. OPEC has chosen not to increase quotas for the time being, and while U.S. crude oil inventories remain comfortable, continued comfort will depend on steady, if not higher, crude oil imports. Retail diesel fuel prices increased by 0.6 cent per gallon to a national average of 128.1 cents per gallon as of June 24.

Gasoline Inventories Low Along the West Coast
Although U.S. gasoline inventories are ample for this time of year, the apparent cushion is uneven on a regional basis. As of June 21, total gasoline inventories in PADD V (West Coast) are 29.7 million barrels, which is more than 10 percent less than at the same time last year, and about 1 percent less than the 5-year average for this time of year. This is of particular concern since the West Coast is fairly isolated from the rest of the country, and California’s gasoline specifications are unique. This means re-supply times are longer than seen in other regions, which in turn, tends to make any upward price movements stronger and of longer duration than elsewhere. When such pressures emerge, spillover effects to Midwest and East Coast markets can be expected, as Gulf Coast refiners send incremental barrels westward. While there appear to be no serious problems in the region yet, relatively low inventories, combined with some short-term outages, has begun to put upward pressure on wholesale and retail gasoline prices there, with the latter up nearly 5 cents per gallon over the last two weeks. If there is further significant tightening in gasoline supplies over the next several weeks, it appears that the effects would be felt along the West Coast first, but could spread to other regional markets as well.

Retail Prices (Cents Per Gallon)

Retail Data		Changes From		Retail Data		Changes From
06/24/02		Week	Year	06/24/02		Week	Year
Gasoline	138.4	0.6	-15.4	Diesel Fuel	128.1	0.6	-16.6

Spot Prices (Cents Per Gallon)

Spot Data		Changes From
06/21/02		Week	Year
Crude Oil WTI	25.51	-0.39	-1.51
Gasoline (NY)	70.3	-3.4	3.6
Diesel Fuel (NY)	65.8	-1.1	-9.2
Heating Oil (NY)	64.8	-1.0	-8.1
Propane Gulf Coast	37.4	-0.4	-3.9
Note: Crude Oil WTI Price in Dollars per Barrel.

Stocks (Million Barrels)


Stocks Data		Changes From		Stocks Data		Changes From
06/21/02		Week	Year	06/21/02		Week	Year
Crude Oil	319.6	-3.4	4.1	Distillate	128.6	-0.9	17.4
Gasoline	216.4	1.2	-4.3	05/31/02		Month	Year
Note: Propane Stocks are estimated.				Propane	51.903	6.085	8.460

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