Released on March 10, 2004
(Next Release on March 17, 2004)

The Question on Everyone's Mind
Over the last couple of weeks, EIA has been inundated with calls, primarily from the media, asking how high gasoline prices will go this season. A corollary question centers on whether we will set a new “record” price, using the August 25, 2003 price of $1.747 as the benchmark. Never mind that if we adjust for inflation, gasoline prices in March 1981 would have averaged close to $3 per gallon today. Or that on a per-mile basis, again adjusting for inflation, gasoline today costs about half of what it did in 1980 and 1981. No, it seems like all anyone wants to know is how much they will have to pay for gasoline this coming season.

For those people who want to peer into the future to try and ascertain an answer, EIA has just released its latest Short-Term Energy Outlook. This monthly forecast, which was released yesterday, forecasts a monthly average peak price of $1.83 in April (and $1.82 in May), which implies that we could see weekly prices even higher. Factors putting upward pressure on prices that have led to the current and expected high prices include:

Of course, there are a myriad of factors that could lead to lower or higher prices than those forecast in the Short-Term Energy Outlook, including:

- Higher- or lower-than-expected oil supply (from OPEC and non-OPEC sources).

- Sharp improvements or deterioration in availability of gasoline imports compared to those seen so far this year

- Lower- or higher-than-expected gasoline demand in the United States. So far this year, gasoline demand growth has been robust, but that may not be sustained.

- Less or more than the usual amount of disruptions affecting the gasoline infrastructure, which includes refineries, ports, and pipelines.

Imports, both for gasoline and crude oil, will be an important factor in determining gasoline prices this coming season. With a U.S. refining system that is stretched to the limit, not only in terms of capacity utilization (rates exceeding 95 percent may not be too uncommon from week to week during the spring and summer), but also in terms of supplying the multitude of unique gasolines required in different parts of the country, inventory cushions in gasoline and crude oil are crucial in mitigating even minor imbalances. Without either, currently, imports become the all important marginal source of supply. Crude oil imports represent the bulk of the crude oil used in U.S. refineries, and they will need to average at least 10 million barrels per day in April, May, and June, just to enable gasoline production to reach its limit. But even that won’t be enough; therefore, gasoline imports will have to grow above year-ago levels, if new supplies are to meet peak gasoline demand expected this year. So far, 2004 has been disappointing for gasoline imports as increased freight rates and tight European supplies have kept gasoline imports below last year’s level. But if gasoline demand continues to grow by 1.5 to 2.0 percent while gasoline production struggles to increase from year-ago levels, gasoline imports will need to not only keep pace with last year’s record levels (averaging nearly 1 million barrels per day from March 2003 through August 2003), but arrive in even greater quantities to prevent gasoline inventories from falling further from already low levels. That said, each week, or even each day, can bring new insights into the gasoline market, as price declines for the April futures contract over the last two days (March 8 and March 9) shows. One thing is clear: there will be a lot of interest in the gasoline market this spring, which makes for a lot of challenging work for analysts here at EIA!

U.S. Retail Average Gasoline Gains 2 Cents
The U.S. average retail price for regular gasoline increased last week by 2.1 cents per gallon as of March 8 to reach 173.8 cents per gallon, which is 2.6 cents per gallon higher than a year ago. This is the highest national retail price on record for this time of year, and the third highest price (not adjusted for inflation) ever recorded on EIA’s weekly retail price survey. Retail regular gasoline prices were up throughout the country last week, with the Rocky Mountains seeing a large 6.8 cent increase to hit 170.7 cents per gallon. California prices averaged 211.2 cents per gallon after edging up 0.3 cent this past week and keeping California prices over $2 for the third week in a row.

Retail diesel fuel prices increased by 0.9 cent per gallon as of March 8 to a national average of 162.8 cents per gallon, which is 14.3 cents per gallon lower than a year ago. Retail diesel prices were mixed last week, with New England and the West Coast, including California, seeing decreases under a penny. The Rocky Mountains saw the largest price increase at 2.4 cents to hit 162.3 cents per gallon, which is still 15.9 cents lower than last year.

Residential Heating Fuel Prices Decrease Slightly Once Again
Residential heating oil prices decreased for the period ending March 8, 2004. The average residential heating oil price fell 0.2 cent from last week to reach 160.1 cents per gallon, a decrease of 25.3 cents from this time last year. Wholesale heating oil prices decreased 2.0 cents to 101.7 cents per gallon, a decrease of 25.3 cents compared to the same period last year.

The average residential propane price fell 1.7 cents, decreasing to 151.3 cents per gallon. This was a decrease of 14.1 cents over the 165.4 cents per gallon average for this same time last year. Wholesale propane prices decreased 9.7 cents per gallon, from 74.9 cents to 65.2 cents per gallon. This was a decrease of 15.2 cents from the March 10, 2003 price of 80.4 cents per gallon.

Propane Inventories Report First Weekly Build
Last week's nearly 0.8-million-barrel stockbuild may be the first sign that the winter draw season has ended and the start of the next propane build season has begun. Accordingly, U.S. inventories of propane rose to an estimated 26.7 million barrels as of March 5, 2004. While March inventories in the past have shown net gains as well as net losses for the month, the trend in recent years has favored lower inventories by month's end. However, with last week's build occurring so early in the month, the possibility that inventories will show a net gain by the end of the month becomes a greater likelihood. But regional inventories last week did not all move in tandem with U.S. inventories, with East Coast and Midwest inventories continuing moderately lower, with respective declines of 0.1 million barrels and 0.3 million barrels. Nevertheless, the Gulf Coast more than offset these declines with a robust 1.1-million-barrel gain that propelled the region’s inventories to about 13 million barrels, a level that moved back within the average range for this time of year. Propylene non-fuel use inventories continued higher last week with a 0.3-million-barrel increase that put total propane/propylene inventories at nearly 1.7 million barrels, accounting for a 6.2 percent share of total propane/propylene inventories.

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