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Released on November 27, 2002
(Next Release on December 4, 2002)
Snow Is Not The Only Thing Falling
Just as snowflakes have begun falling from the sky, so too, have gasoline prices in much of the country. According to EIA’s weekly survey of gasoline stations, the average price for regular gasoline has dropped 5.9 cents per gallon nationally between November 11 and November 25. American Automobile Association’s (AAA) daily survey of retail prices shows a similar pattern in that time period, with prices dropping by 5.5 cents per gallon in their survey. AAA, which reports average prices daily for each state, shows that only Montana and Nevada have shown even the slightest increase over this 14-day period, with both rising by just 0.4 cent per gallon. Where prices have fallen the most is in the Midwest portion of the country, which also happens to be where the snow has fallen. For example, in Minnesota, the only state in the Midwest for which EIA provides a state average in our survey, the average price for regular gasoline has dropped by 12.2 cents per gallon over the last two weeks, which tracks the average fall in the Midwest region as well. Looking at the AAA data by state, it’s evident that the Midwest states have seen the largest declines, while the Northeast and the West Coast states (including Alaska and Hawaii) have seen the smallest declines. So what is causing this price drop?
First, crude oil prices have fallen in recent weeks, bringing down the price of gasoline along with it. The spot price for West Texas Intermediate crude oil, the crude oil which most oil in North America is priced against, has fallen from about $30 per barrel as recently as late September through early October, to around $27 per barrel currently. Assuming that the drop in crude oil is passed through the petroleum system fully to the retail gasoline price, a decline of this magnitude would lead to a drop in gasoline prices of 7-8 cents per gallon. Thus, looking at the crude oil market alone, it appears that retail gasoline prices might fall even further in the next few weeks, barring a turn-around in crude oil prices.
But the gasoline market has also softened, particularly in the Midwest, where prices have fallen the most. Whereas gasoline inventories in PADD II (Midwest) were about 5 percent below the 5-year average back in mid-to-late October, they have now increased somewhat, and as of the week ending November 22, are now just about equal to the 5-year average. While this may not appear to be a large improvement, it does point to less tightness in the Midwest gasoline market now than a month ago, as well as an expectation of continued increases in gasoline supplies.
While gasoline prices in the Midwest have fallen, along with the snow, prices have not dropped substantially in the Northeast or West Coast regions of the country. In New England, the average price of regular gasoline has decreased by only 0.7 cent per gallon over the last two weeks, while the West Coast has seen prices fall by 1.8 cents per gallon, far less than the national average. Presumably, relatively tight supplies of reformulated gasoline, along with limited supplies of key blending components, has temporarily dampened downward pressure in these regions. But even here, recent movements at the wholesale level suggest loosening conditions and lower prices ahead. As such, with Thanksgiving travel coming up, it will be interesting to see what gasoline prices will do in the Northeast, particularly. Will they rise or stay steady as automobiles travel up and down the I-95 corridor this Thanksgiving season, or will they follow the Midwest and fall more precipitously, just as snow begins to descend on the region?
Retail Gasoline Price Drops While Diesel Fuel Price Remains Steady
The U.S. average retail price for regular gasoline fell last week for the third week in a row, decreasing by 2.9 cents per gallon as of November 25 to end at 138.0 cents per gallon. Despite the continuing decline mentioned above, the national average price for regular gasoline is 25.3 cents per gallon higher than last year.
Retail diesel fuel prices remained flat last week after four weeks of falling prices, staying at a national average of 140.5 cents per gallon as of November 25. Diesel fuel prices may not soften significantly during the coming months, as distillate fuel inventories are expected to drop below the normal range this winter and remain low through 2003. Retail diesel prices were mixed throughout the country, with the largest price increase occurring in the Midwest, which saw the price rise by 0.6 cent per gallon to end at 141.2 cents per gallon.
Residential Heating Fuel Prices Move Upward
Residential heating oil prices increased slightly for the period ending November 25, 2002. The average residential heating oil price was 127.9 cents per gallon, up 0.7 cent per gallon from the previous week. Residential propane prices also continued to move upward slightly by 0.7 cent per gallon, from 116.1 to 116.8 cents per gallon. Heating oil prices are 9.9 cents per gallon higher than last year at this time while residential propane are 3.6 cents higher than one year ago. Wholesale heating oil prices increased 6.2 cents per gallon, to 83.8 cents per gallon, while wholesale propane prices increased from 52.8 to 55.2 cents a gallon, up 2.4 cents per gallon.
Propane Inventories Flat
Following several weeks of steep declines, U.S. inventories of propane essentially remained flat last week with inventories ending the week of November 22, 2002 at an estimated 61.2 million barrels. Unseasonably cold weather during late October and early November apparently spurred many primary stockholders to begin shifting inventories closer to retail markets in anticipation of more cold weather. Although cold weather still persists in many areas of the nation that use propane to heat their homes, the sharp draw on U.S. inventories seen during this period may have abated as inventories now seem more balanced with expected consumer heating demand.
Regional inventory activity shows the East Coast with the largest weekly draw of 0.2 million barrels, followed with the Midwest with a more modest 0.1 million barrels decline. At the same time the Gulf Coast reported an unexpected stock build measuring 0.3 million barrels, the first since the start of the heating season in October. Regional inventories remain above or at the upper limit of the average range in the East Coast and Gulf Coast areas last week while inventories in the Midwest region remain near the lower limit of the average range during this same time.
Note: Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.
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