Released on May 5, 2004
(Next Release on May 12, 2004)

The Daily Show
While Jon Stewart's "The Daily Show" on Comedy Central has become a popular show for the cable network, for oil analysts, watching the near-month futures contract on gasoline has become a daily event as well. New peak prices for this contract were reached every day last week and then again on Monday and Tuesday this week. With the near-month gasoline futures price recently setting new all-time highs (unadjusted for inflation) on a daily basis, what does this portend for retail gasoline prices in the near-term?

Over the last two weeks (since April 21), spot prices in various parts of the country are up by 18-20 cents per gallon, except in California, where they have risen by more than 35 cents per gallon. EIA studies have shown that changes in spot gasoline prices are passed through to retail levels over several weeks. Fortunately for consumers, today's weekly data release, showing that total gasoline inventories (including blending components) increased by 4.0 million barrels last week, may put a damper on spot and futures gasoline prices, at least temporarily. But even so, unless this is a harbinger of continued strong inventory recovery in May, spot prices are likely to remain significantly above their levels two weeks ago, suggesting further retail price increases above the current level of $1.844 per gallon are likely in the coming weeks.

Update on Reformulated Gasoline Supply Assessment for New York and Connecticut
In October 2003, EIA published a review of the status of the methyl tertiary butyl ether (MTBE) ban transition in New York and Connecticut that noted significant uncertainties in gasoline supply for those States this summer. To obtain updated information, EIA spoke to major suppliers to the two States over the past several months as the petroleum industry began the switch from winter- to summer-grade gasoline.

As discussed on our earlier report, the bans on MTBE mainly affect reformulated gasoline (RFG), which in recent years has been provided by domestic refineries on the East Coast (PADD 1) and imports. Our recent findings indicate that domestic suppliers (including suppliers from the Gulf Coast) will likely produce more reformulated gasoline blendstock for oxygenate blending (RBOB) for New York and Connecticut than previously estimated last fall. While sizeable gasoline import volumes are still needed, conversations with a number of import suppliers and trade press reports about cargoes of summer-grade RBOB lead us to believe adequate supply potential has emerged, and the likelihood of any severe shortfalls due to the initial transition is significantly reduced from our earlier assessment.

While this new ethanol-blended RFG market required considerable rebalancing, the supply shifts appear to be occurring. The ethanol-blended RFG supply for New York and Connecticut is more certain than when EIA first looked at it last fall, but some concerns remain. The New York and Connecticut area has become an island market for hard-to-produce gasoline. As such, the two States are more exposed to price volatility than surrounding areas in the event of any loss of supply because additional supply sources may be more than a week away, the number of suppliers that can serve these States is reduced, and these two States cannot draw on nearby inventories of different gasoline types to fill the gap.

As the peak summer season nears, all gasoline markets are tight, as evidenced by low inventories relative to seasonal norms. Low inventories reduce the local supply cushion available to respond to unexpected supply-demand imbalances, and the addition of RBOB and ethanol requirements to the Northeast supply and distribution system limits supply flexibility for the entire region. Under these tight market circumstances, the potential for price volatility increases not only for New York and Connecticut, but for other regions as well. New York and Connecticut, however, have fewer sources to turn to, and, therefore, any volatility may be more pronounced with longer duration in those states.

Retail Gasoline Prices Gain Another 3 Cents
The U.S. average retail price for regular gasoline increased by 3.2 cents per gallon as of May 3 to reach 184.4 cents per gallon, 33.1 cents higher than at this time last year. This is the highest nominal price since EIA began recording this data series in August 1990. Retail regular gasoline prices were up last week, with the Midwest seeing the largest price increase of 4.7 cents to hit 182.0 cents per gallon. Prices in California and on the West Coast remained the highest in the nation, with California prices falling by 0.9 cent to 211.5 cents per gallon. Prices on the West Coast gained 0.5 cent, to hit 208.3 cents per gallon, which is 24.6 cents higher than this time last year.

Retail diesel fuel prices decreased by 0.1 cent per gallon as of May 3 to a national average of 171.7 cents per gallon, which is 23.3 cents per gallon higher than a year ago. Retail diesel prices were mostly down throughout the country last week, but the West Coast saw a regional increase of 4.3 cents to hit 214.6 cents per gallon. California prices gained 2.7 cents to 227.4 cents per gallon, marking the fifth week California average diesel retail prices have topped $2 per gallon. High prices due to previous refinery problems and an early seasonal increase in agricultural diesel demand may have been further exacerbated by a pipeline spill of diesel fuel late last week.

April Build Below Average for Propane Inventories
With last week's 2.1-million-barrel addition to U.S. inventories of propane, the cumulative April stockbuild totaled 3.9 million barrels, about 10 percent below the average build recorded over the most recent 5-year period from 1999 through 2003. As such, primary inventories of propane moved up to end the week of April 30, 2004 at an estimated 31.2 million barrels, a level that remains near the lower boundary of the normal range for this period. With the exception of a modest 0.1-million-barrel draw on East Coast inventories last week, inventories posted gains in all regions that included similar builds of 1.0 million barrels in the Midwest and Gulf Coast regions, followed with a 0.1-million-barrel increase in inventories west of the Rockies. Regional inventories by the end of the month were positioned near the lower boundaries of the normal range in the East Coast and Gulf Coast regions, while in the Midwest, inventories continued on a path well within the normal range for this time of year. Propylene non-fuel use inventories continued to edge higher at 1.9 million barrels by the end of the week, accounting for a 6.1 percent share of total propane/propylene inventories.

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