Released on August 13, 2003
(Next Release on August 20, 2003)

Late Summer Surge
With average retail prices for regular grade gasoline up 5.5 cents per gallon nationally over the last two weeks (on top of a smaller rise that has taken place since the July 4 halfway point of the summer season), it’s possible that we may be in the midst of another late-summer surge. In 2000, the national average price for regular gasoline rose by 11.4 cents per gallon during the four-week period from August 14 to September 11, and in 2001, prices rose by 16.9 cents per gallon between August 6 and September 3. Even if spot gasoline prices don’t rise substantially from where they were last week (and already we’ve seen a huge spike in gasoline prices around the Los Angeles area due to refinery and pipeline problems earlier this week), further increases in retail prices may occur, with increases in August possibly approaching those seen in the late summers of 2000 and 2001.

What’s interesting is how similar the pattern of gasoline prices this year has been to 2000 and 2001 (or looked at differently, how unusual last year was). All three years (2000, 2001, and 2003) saw large price increases in the spring or early summer followed by a substantial price decline throughout the heart of the summer season, only to see prices rise again in late summer (see chart below). In all three years, the high prices earlier in the season encouraged increased refinery production of gasoline, which helped push gasoline prices back to levels seen before the early season price surge. However, in both 2000 and 2001, refinery production of gasoline dropped by late summer as refiners began to shift their yields towards making more distillate fuel. Additionally, in 2001, crude inputs into refineries dropped in late summer, thus making the reduction in gasoline production more dramatic. But this year, gasoline refinery production has remained relatively strong, with historically strong gasoline demand putting pressure on prices. With the price of West Texas Intermediate crude oil above $30 per barrel recently, higher gasoline prices would likely be necessary to encourage refiners to process more crude oil. Therefore, any further increase in retail gasoline prices could encourage even more gasoline production and ultimately lead to lower gasoline prices down the road. But this may not occur until after the end of the summer season.

U.S. Retail Gasoline Prices Rise Again
The U.S. average retail price for regular gasoline rose last week for the fifth time in six weeks, increasing by 3.5 cents per gallon as of August 11 to reach 157.1 cents per gallon, which is 17.8 cents per gallon higher than a year ago. Prices rose pretty uniformly throughout the nation, with the largest increase of 4.5 cents occurring in the Lower Atlantic and the smallest increases of 2.7 cents occurring in the Midwest and New England. The West Coast posted the highest regional average retail price for gasoline, with prices rising 4.2 cents to hit 171.4 cents per gallon. The region with the lowest average price is the Gulf Coast, where prices for regular gasoline averaged 148.6 cents per gallon.

Retail diesel fuel prices increased last week by 3.9 cents per gallon as of August 11 to a national average of 149.2 cents per gallon, which is 18.9 cents per gallon higher than a year ago. Retail diesel prices were up throughout the nation last week, with the Midwest and Gulf Coast seeing price increases of 4.4 cents and 4.7 cents, respectively. Lower Atlantic retail diesel prices averaged the lowest in the country at 143.4 cents per gallon as of August 11, while California saw the highest prices at 171.5 cents per gallon.

Weekly Propane Stockbuild Continues Strong
U.S. stockholders of propane continued to build storage at a robust pace last week with a 2.3-million-barrel addition that put U.S. inventories of propane as of August 8, 2003 at an estimated 58.5 million barrels. Last week's strong stockbuild continued to push U.S. inventories closer to the middle of the average range for this time of year. Regional stockbuilds were mostly concentrated in the Gulf Coast region last week with a reported 1.4-million-barrel gain, followed by the Midwest region that saw inventories rise by 0.8 million barrels during this same period. Inventories in the East Coast region last week posted a small inventory drop that totaled less than 0.1 million barrels. While East Coast inventories moved to the lower limit of the average range last week, Gulf Coast inventories moved above the upper limit of the average range for this period. During this same time, Midwest inventories continued to track below the average range. Propylene nonfuel use inventories fell by nearly 0.2 million barrels to end the week at about 3.7 million barrels, a level accounting for 6.3 percent of total propane/propylene inventories.

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