Released on May 4, 2005
(Next Release on May 11, 2005)

Mostly Cloudy With a Slight Chance of Rain
Lately, in many cities throughout the United States, people have heard a familiar weather forecast for the upcoming day - mostly cloudy with a slight chance of rain. The forecast for gasoline prices this month might be similar - mostly down with a slight chance of an increase. To top it off, weather is one of the reasons that many consumers are seeing their gasoline prices begin to fall.

As winter has come to an end (except apparently for some folks in Colorado and other Western areas that saw measurable quantities of snow last weekend) and temperatures have risen, oil markets have turned their attention away from heating oil and towards gasoline. As a result, rather than focusing on how low distillate fuel inventories are for this time of year, the focus has been on gasoline inventories, which have been near or above the upper end of the average range in recent weeks. Similarly, U.S. refiners, in ending relatively extensive late spring maintenance, are refocusing their efforts away from distillate fuel and towards higher gasoline production. And with gasoline demand growing at a somewhat slower pace, even on a forward cover basis (the number of days of forward or expected demand that can be “covered” by inventories), the U.S. gasoline market is showing marked signs of improvement for consumers.

In addition to the improving gasoline inventory situation, crude oil inventories continue to rise, reaching 327.0 million barrels as of April 29, the highest level since the end of March 2002. Of course, with crude oil refinery inputs expected to increase by at least 0.8 million barrels per day between now and the peak this summer, and imports not expected to increase by much over current levels, inventories will need to be drawn down this summer to supply the crude oil refineries will need. Therefore, the longer and higher U.S. crude oil inventories can build before they’re needed, the greater the quantity that will be available when refinery inputs peak.

Because of the improving U.S. crude oil inventory situation and the shift in focus towards gasoline, the price of West Texas Intermediate (WTI) crude oil (the benchmark crude oil in the United States) has dropped recently, as has the spot price of gasoline. Since April 1, the spot price of WTI has fallen by nearly $8 per barrel, while the average spot price of gasoline has dropped by more than 27 cents per gallon. Unless supplies are disrupted, either through reduced crude oil availability, or from a major refinery or pipeline outage, retail gasoline prices are likely to fall during May as lower wholesale gasoline prices are reflected at the retail level. While such a decline will be a welcome relief for gasoline consumers, the outlook remains mostly cloudy, as retail prices are still expected to remain well above last summer’s level.

U.S. Average Retail Gasoline Price Edges Downward
The U.S. average retail price for regular gasoline decreased this week by 0.1 cent from the previous week to 223.5 cents per gallon as of May 2, 39.1 cents higher than this time last year. This is the third week in a row that prices have decreased. Prices were mixed throughout the country, with the East Coast seeing an increase of 0.8 cent to reach 221.1 cents per gallon. Rocky Mountain prices rose by 1.3 cents to 226.5 cents per gallon while Midwest prices fell 0.9 cent to 215.6 cents per gallon. California prices saw a decrease of 0.5 cent to 256.0 cents per gallon, which is 44.5 cents higher than this time last year.

Retail diesel fuel prices were down 2.7 cents last week to 226.2 cents per gallon. Prices were down throughout the country, with the Midwest seeing the largest decrease of 3.6 cents to 219.4 cents per gallon. Average diesel fuel prices on the East Coast fell by 2.3 cents to reach 226.4 cents per gallon, which is 61.1 cents higher than this time last year.

April Propane Build Above Average
Primary stockholders added an above-average 6.4 million barrels to inventories during April, surpassing the 5-year average for this month by nearly 60 percent, putting U.S. inventories of propane at an estimated 33.2 million barrels as of April 29, 2005. Last week, propane inventories posted a 1.7-million-barrel build that reflected across-the-board builds in all major propane-consuming regions of the nation. Following the prior week’s downturn in inventories, East Coast inventories bounced back with a 0.3-million-barrel gain last week. At the same time, Midwest inventories continued higher with a 0.6-million-barrel increase, while the Gulf Coast, on the heels of higher imports, posted the largest weekly build that measured 0.7 million barrels. However, the combined Rocky Mountain/West Coast regions remained unchanged for the fifth straight week at 0.5 million barrels. Propylene non-fuel use inventories slipped lower by 0.1 million barrels to account for a smaller 13.9 percent share of total propane/propylene inventories, compared with a 14.9 percent share the prior week.

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