Released on February 25, 2004
(Next Release on March 3, 2004)

And the Winner Is …
With the Oscars just a few days away, analysts seeking to get in the spirit of the event might consider similar awards for oil markets. Certainly the U.S. gasoline market could be considered a strong contender for the most dramatic market in 2003, with prices reaching historically high levels (not adjusted for inflation) not just once (March 2003), but twice (August 2003). While the global crude oil market might also be a strong contender in this category, it is gasoline that generates more phone calls and e-mails to EIA analysts. In fact, last year an e-mail was circulating around the Internet telling which oil companies imported the most crude oil from Persian Gulf countries (based on available EIA data) and urging motorists to boycott buying gasoline from these same companies. Of course, there are many reasons why this doesn’t make sense, but EIA received enough of these e-mails that we have posted a response on our web site (see Primer on Gasoline Sources and Markets). With 230 million vehicles (in 2002) registered in the United States and about 170,000 retail gasoline stations displaying the latest price in tall, bold numbers, it is not too surprising that gasoline prices are often on the minds of people living in the United States.

Even though we have yet to see the peak driving season for 2004, gasoline markets already look to be ready for an encore performance this year. The average retail price for regular gasoline is up 21 cents per gallon since December 29, 2003, with an increase of 4 cents per gallon last week alone. While the largest increase has been seen in California (up 43.4 cents per gallon over this period, with a jump of 16.1 cents per gallon last week), there have been significant increases across the country. While it is still too early to know with any certainty how high prices will go this year, many signs are pointing to a tight gasoline market this driving season.

First, gasoline inventories are below the normal range for this time of year, meaning that should problems occur, there is little available supply immediately on hand either to meet increased demand or to respond to refinery, pipeline, or other infrastructure problems that may occur. (Even less is available if inventories are measured in days of future consumption.) Of course, gasoline production will increase as we head into the peak season, but there is a limit on how much it can increase, as refineries typically operate at near maximum capacity during the spring and summer, when gasoline demand typically peaks. Therefore, imports become a key source of supply. Last year, from March through August, total gasoline imports averaged 976,000 barrels per day. So far, in 2004, total gasoline imports are running below last year’s level during the same period, and it is unclear whether this pattern might continue into the next several months, given numerous uncertainties surrounding new gasoline specifications this year. If so, a reduction in the level of imports would add to the tightness of gasoline markets, as it would mean yet another source of supply (in addition to inventories) that is less available than before. Speaking of imports, crude oil import levels are also key to the outlook since with low crude oil stocks, refiners will have to increasingly depend on an uninterrupted flow of crude oil. With demand likely to average 1 to 2 percent or more higher than last summer, any significant reduction in supply will likely lead to high prices again this year. The year has certainly started with a bang in gasoline markets, as gasoline has been more of a focal point this winter than heating oil. In fact, looking at the key winter months of December, January, and February, the premium for the near-month futures price of gasoline compared to the near-month futures price of heating oil has never been as large as it was this past Friday (February 20), Monday (February 23), and Tuesday (February 24). With most, if not all, signs (including crude oil prices) pointing to high gasoline prices, the U.S. gasoline market appears primed to turn in another dramatic performance in 2004.

U.S. Retail Average Gasoline Jumps 4 Cents
The U.S. average retail price for regular gasoline increased last week by 4.0 cents per gallon as of February 23 to reach 168.8 cents per gallon, which is 3.0 cents per gallon higher than a year ago. Retail regular gasoline prices were up throughout the country last week, with the West Coast driving the national increase with a 13.4-cent jump in prices to hit 194.7 cents per gallon. California prices averaged 202.9 cents per gallon after gaining 16.1 cents this past week and sending California prices back over $2 for the first time since September 15, 2003.

Retail diesel fuel prices increased by 1.1 cents per gallon as of February 23 to a national average of 159.5 cents per gallon, which is 11.4 cents per gallon lower than a year ago. Retail diesel prices were mostly up throughout the country last week, although prices on the West Coast did soften, falling 0.1 cent to reach 178.8 cents per gallon. The East Coast saw the largest price increase at 1.4 cents to hit 161.6 cents per gallon, with the Lower Atlantic increasing by 1.8 cents to reach 155.1 cents per gallon.

Residential Heating Fuel Prices Show Little Movement
Residential heating oil prices decreased for the period ending February 23, 2004. The average residential heating oil price fell 0.2 cent from last week to reach 160.9 cents per gallon, a decrease of 14.3 cents from this time last year. Wholesale heating oil prices decreased 5.3 cents to 96.0 cents per gallon, a decrease of 24.7 cents compared to the same period last year.

The average residential propane price remained at 153.5 cents per gallon, an increase of 3.1 cents over the same time last year. Wholesale propane prices decreased 2.5 cents per gallon to 73.4 cents per gallon. This was a decrease of 7.9 cents from the February 24, 2003 price.

Weekly Propane Stockdraw Begins to Moderate
Reflecting slowly rising temperatures across major regions of the country in recent days, primary stockholders of propane witnessed some moderation in the weekly draw that measured about 1.8 million barrels, leaving U.S. inventories of propane at an estimated 26.2 million barrels as of February 20, 2004. This is in contrast to the relatively sharp declines reported during the first few weeks of February that mostly likely reflected the last vestiges of the coldest period of the winter heating season. However, following last week's stockdraw, the monthly decline so far has surpassed the average for February reported over the most recent 5-year period. While Midwest inventories continued to account for most of the weekly decline with a nearly 0.8-million-barrel drop, the weekly draw was considerably lower compared with stockdraws earlier in the month. Gulf Coast inventories, which are near record lows for this time of year, reported a modest 0.5-million-barrel decline, while East Coast inventories continued to post relatively robust draws with a weekly decline that totaled nearly 0.4 million barrels. Propylene non-fuel use inventories surged higher last week to nearly 1.5 million barrels, up about 0.1 million barrels from the prior week, and accounting for a 5.7 percent share of total propane/propylene inventories.

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