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Released on July 17, 2002
(Next Release on July 24, 2002)
Equilibrium
Despite the recent barrage of news reports about corporate meltdowns and the ongoing turmoil in the Middle East and elsewhere, U.S. gasoline markets have maintained exceptional resilience, at least through the first half of the 2002 summer driving season. In contrast to earlier years, which were constantly plagued by regional supply problems and/or price run-ups, gasoline markets appear to be more balanced this year, pitting robust consumer demand against more than adequate supplies from record imports and relatively strong refinery production.
Since the start of the summer driving season on the Memorial Day holiday, gasoline demand has averaged more than 8.9 million barrels per day through the week ending July 12, 2002, 3.0 percent above the same period during 2000 and about 1.9 percent above the 2001 period based on data from comparative weekly surveys. While rising gasoline demand is typical for this time of year, the overall balance between gasoline supply and demand appears much closer this year compared with prior years, which saw gasoline supply problems resulting in regional price spikes, particularly in the Midwest and on the West Coast. On the supply side, gasoline inventories began the 2002 driving season at 218 million barrels, 17 million barrels and 10 million barrels, respectively, above the levels seen at the start of the 2000 and 2001 driving seasons. Supplementing supply during this same period were record imports measuring 0.8 million barrels per day, a level considerably above the 0.5 million barrels per day and 0.7 million barrels per day levels reported for the comparable 2000 and 2001 periods. The only supply component lagging prior year levels during the first half of the summer driving season was gasoline production by refineries that totaled nearly 8.5 million barrels per day. While this level was only 0.2 percent and 2.3 percent below respective prior year periods for 2000 and 2001, on a year-to-date basis gasoline production was, in fact, more than one percent above the same periods for both years, due largely to increases the first two months of the year. Moreover, gasoline demand remains the only major petroleum product showing year-on-year growth through week ending July 12, 2002. Thus, increases in the supply of gasoline have been balanced by increased demand.
Another factor contributing to balanced gasoline markets this year was the modest draw on inventories during the first half of the summer driving season that totaled 4.9 million barrels. While gasoline inventories typically fall over the course of the summer driving season, prior year periods for 2000 and 2001 actually showed respective inventory gains of 4.6 million barrels and 9.8 million barrels. Thus, it may be reasoned that gasoline inventories provided for a more readily available source of supply during the first half of the 2002 driving season compared with prior years, as record imports provided for a sizable inventory cushion during this period. But possibly the best gauge for measuring gasoline market stability stems from the comparatively flat gasoline prices seen this year compared with prior years. Between the Memorial Day holiday and mid-July, total retail gasoline prices ranged by only 2.2 cents per gallon. Comparable periods during 2000 and 2001 showed total retail gasoline price variations of 15.4 cents a gallon and 30.0 cents per gallon, respectively. However, the equilibrium experienced so far during this summer’s driving season could lull refiners to be complacent in adding extra supply during the second half of the season when gasoline demand typically peaks. Evidence of this occurring may already be apparent as total gasoline imports (including gasoline blending components) so far in July, are much less than was imported in June. Whether the U.S. gasoline market exhibits the same balance during the latter half of the driving season remains to be seen, but certainly the first half has shown equilibrium unmatched except for possibly the recent major league baseball All-Star game, which ended in a rare tie.
Retail Gasoline Prices Move Up a Notch
The U.S. average retail price for regular gasoline gained 1.2 cents per gallon last week, ending at 139.4 cents per gallon as of July 15. This price is 1.9 cents per gallon lower than last year. Price changes were mixed throughout the country, with the largest increase occurring in the Midwest, where prices rose 3.5 cents per gallon to end at 140.7 cents per gallon. Price increases were also seen on the East Coast and Gulf Coast. Prices dropped on the West Coast and in the Rocky Mountain region, with the largest decrease occurring in California, where prices fell 0.9 cent to end at 160.4 cents per gallon. Prices have remained relatively flat over the past few months, but there is still potential for price increases before Labor Day if we see a decrease in gasoline imports, steady or rising gasoline demand, or a decrease in refinery output. Retail diesel fuel prices increased by 0.6 cent per gallon to a national average of 130.0 cents per gallon as of July 15.
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