Released on April 20, 2005
(Next Release on April 27, 2005)

$50 and $2
With the near-month futures price of West Texas Intermediate (WTI) above $50 per barrel since February 22 and the average retail price of a gallon of regular gasoline averaging above $2 nationally for the last six weeks and counting, many oil market analysts and consumers are wondering if these prices are here to stay or if they are just a temporary aberration prior to a return to lower oil prices. While it is very likely that prices will fall below these two “benchmarks” for a sustained period at some point in the future, the key question is whether it will happen this year, next year, or only in the more distant future?

EIA’s latest monthly forecast, which was prepared before the recent drop in the near-month futures price to just above $50 per barrel, projected WTI prices to stay above $50 per barrel and the U.S. average retail price for regular gasoline to remain above $2 per gallon on a monthly basis through 2006. Notwithstanding the recent price drop, we continue to see a tight global oil supply and demand balance through 2006, especially highlighted by strong demand growth and limited spare crude oil production capacity (see graph below). As long as global demand continues to grow at 2 million barrels per day or more without a comparable increase in crude oil production capacity, there is little reason to expect a sustained fall in crude oil and petroleum product prices. Until demand growth slows dramatically or supply capacity grows significantly more than seen in recent years, it is unlikely that WTI will fall substantially below $50 per barrel for any significant period of time. While at least one prominent oil market analyst does expect a surge in non-OPEC production later this year, EIA does not share that view. While high oil prices should eventually lead to lower demand and more supply capacity, EIA does not envision this occurring in the immediate future. Thus, while some oil market analysts are calling for a sharp drop in oil and gasoline prices this summer, EIA is not expecting WTI to fall below $50 per barrel or the U.S. average retail price of regular gasoline to drop below $2 per gallon for a sustained period anytime soon.

New U.S. Average Stockbands Beginning With This Week’s Report
Every April and October, EIA adjusts its stockbands to reflect the most recent 5-year period. Beginning with this week’s report, the stockbands reflect the data for the 5-year period from January 2000 through December 2004, while the previous stockbands reflected data for the 5-year period from July 1999 through June 2004. Because of the different inventory levels during these different 5-year periods, there are some differences between the new stockbands and the ones that have been used since October 2004. The most significant differences are:

· While the lower end of the crude oil range is relatively unchanged, the upper end is about 4 million barrels lower,

· The upper end of the gasoline range is about 1 million barrels higher, while the lower end is relatively unchanged.

· The upper end of the distillate fuel range is over 3 million barrels lower, while the lower end is relatively unchanged.

U.S. Average Retail Gasoline Price Falls 4 Cents
The U.S. average retail price for regular gasoline decreased this week by 4.3 cents from the previous week to reach 223.7 cents per gallon as of April 18, 42.4 cents higher than this time last year. This marks the first time in nine weeks that prices have decreased. Prices were down throughout most of the country, although the West Coast saw an increase of 0.2 cent to reach 253.0 cents per gallon, staying over $2.50 per gallon for the second week in a row. Midwest prices saw the largest decrease of 9.6 cents to 215.0 cents per gallon, which is 37.2 cents higher than this time last year.

Retail diesel fuel prices fell 5.7 cents last week to 225.9 cents per gallon, the first time in ten weeks that prices have fallen. Prices were down throughout the country, with the Gulf Coast and Midwest seeing decreases of about 7 cents to 218.0 cents per gallon and 219.4 cents per gallon, respectively. Average diesel fuel prices on the West Coast fell by 3.1 cents to reach 255.4 cents per gallon, which is 44.2 cents higher than this time last year.

Propane Inventories Sharply Higher
Propane inventory additions continued strong last week with a weekly build that totaled 2.3 million barrels, moving U.S. inventories of propane higher to 30.1 million barrels as of April 15, 2005. As of mid-April, U.S. stockholders so far have added 3.3 million barrels to primary inventories, a level accounting for more than 80 percent of the 5-year average volume of 4.0 million barrels for this month. Moreover, U.S. inventories of propane continue on a path near the middle of the average range for this time of year. Regional builds were reported across all of the major areas with the East Coast reporting a weekly gain of 0.1 million barrels, while the Midwest posted the largest weekly gain that totaled 1.5 million barrels. During this same period, Gulf Coast inventories rose by 0.9 million barrels while the combined Rocky Mountain/West Coast regions remained flat. Propylene non-fuel use inventories fell by 0.1 million barrels to 4.6 million barrels last week, slipping to 15.3 percent of total propane/propylene inventories from the prior week’s 16.9 percent share.

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