Released on July 21, 2004
(Next Release on July 28, 2004)

L’Alpe d’Huez
Today, Lance Armstrong, Ivan Basso, Jan Ullrich, and the other remaining riders in the Tour de France climbed L’Alpe d’Huez, one of the most difficult climbs in all of cycling. Consumers may feel that they, too, have witnessed a similar experience as national average retail gasoline prices climbed from below $1.50 per gallon at the end of 2003 to above $2 per gallon by late May. Between May 24 and July 5, retail gasoline prices dropped by nearly 17 cents per gallon, but over the past two weeks they have climbed by a little more than 3 cents per gallon. Are gasoline prices ready to descend precipitously in coming weeks, or will they likely continue to follow a rolling up-and-down pattern, not unlike some of the stages in the most popular bicycle race in the world?

This is a difficult question to answer right now. The near-month futures price for gasoline dropped by nearly a nickel yesterday, and if it remains at that price or lower, retail prices could drop in the coming weeks. With a significant increase in gasoline inventories last week, at a time of year when they are typically being drawn down, there is reason to believe that, in fact, futures and spot prices may remain at or below current levels, barring any major pipeline or refinery problems.

However, with 40 percent or more of the retail gasoline price dependent on crude oil prices, it is vitally important to monitor crude oil markets when analyzing the near-term path of gasoline prices. And while the near-month futures price for West Texas Intermediate dropped yesterday as well (as the August 2004 contract expired), the drop was not nearly as large as was seen in gasoline. Plus, commercial crude oil inventories in the United States dropped by 3.6 million barrels between July 9 and July 16, which could put a brake on any momentum for crude oil prices to decline further over the next few days. In previous weeks, crude oil inventories had risen within the average range, while some of the major petroleum product inventories did not improve. However, last week, the opposite phenomenon occurred, with crude oil inventories falling significantly, while gasoline and distillate fuel inventories rose. But with OPEC promising to increase production in August, and Saudi Arabia announcing its intention to have production in July average more than in June, oil market analysts will be watching crude oil data closely over the rest of summer.

So, what does it all mean with respect to gasoline prices between now and Labor Day? With some of the key signals pointing in opposite directions, it is difficult to say with any confidence. With this in mind, it would not be surprising to see retail prices fluctuate near current levels for the next few weeks. However, just as the Tour de France cyclists experienced some minor climbs and descents earlier in the Tour, so too might gasoline prices move up and down. But unlike the cyclists, who will leave the mountains and return closer to sea level by the end of the week, we do not expect a substantial drop in retail prices between now and Labor Day, and probably beyond.

Retail Gasoline Prices Increase 1.1 Cents
The U.S. average retail price for regular gasoline increased by 1.1 cents per gallon from the previous week to reach 192.8 cents per gallon as of July 19, 40.4 cents higher than this time last year. This is the second price increase in a row after six weeks of declining prices. Retail regular gasoline prices were mixed last week, with the Midwest seeing the largest increase of 2.5 cents to hit 189.2 cents per gallon. Prices in California and on the West Coast remained the highest in the nation, with California prices falling by 0.7 cent to 218.6 cents per gallon and West Coast prices falling by 1.1 cents to 211.3 cents per gallon.

Retail diesel fuel prices gained 0.4 cent this week to a national average of 174.4 cents per gallon, which is 30.5 cents per gallon higher than a year ago. Retail diesel prices were mixed last week, with the West Coast seeing a decrease of 0.7 cent to hit 203.3 cents per gallon. California prices lost 1.7 cents to 209.6 cents per gallon.

Weekly Propane Build Rebounds
Following a surge in import actively last week, particularly in the Gulf Coast region, U.S. inventories of propane rebounded with a 1.7-million-barrel increase that put inventories at an estimated 46.2 million barrels as of July 16, 2004. Despite last week's gain, U.S. inventories fell short of moving within the average range for this time of year. Propane imports, consisting of several large cargoes, contributed to boost Gulf Coast inventories up 1.1 million barrels to account for the largest regional gain last week, followed by a 0.5-million-barrel increase in Midwest inventories. During this same time, the combined Mountain/West Coast region continued to show strong inventory growth with a 0.2-million-barrel weekly increase that left inventories in the combined regions at 2.3 million barrels. Except for the Gulf Coast region, all major areas of the nation reported inventories within their respective average ranges for this time year. However, the surge in Gulf Coast inventories did not significantly move the region’s inventories closer to the lower boundary of the average range last week. Propylene non-fuel use inventories remained unchanged for the third consecutive week at 2.5 million barrels, accounting for a smaller 5.4 percent share of total propane/propylene inventories, compared with last week's 5.6 percent share.

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