Released on July 13, 2005
(Next Release on July 20, 2005)

Twin Peaks
The title of a popular television drama series, Twin Peaks, which first aired during the spring of 1990, may be a good description of an emerging trend in retail gasoline prices seen since 2000. Prior to 2000, retail prices would typically follow a pattern of slowly rising prices, starting in late winter or early spring. With peak summer gasoline demand occurring between the Memorial Day and Labor Day holidays, retail gasoline prices would correspondingly peak at some point during this period. However, since 2000, this price pattern has given way to one that shows two distinct retail peaks during most years.

From 2000 to 2004, retail gasoline prices generally peaked ahead of the summer driving season at some point between mid-March and mid-May (except in 2002 when gasoline prices remained relatively flat following a modest rise in prices during the first quarter of the year). From this peak, gasoline prices tended to drift lower over the next several weeks but would begin to rise again and reach a second peak either near the end or after the summer driving season. This year, gasoline markets are again following the recent trend, with the first price peak occurring on April 11 at $2.28 per gallon. Lagging the fall in crude oil prices after the first quarter of 2005, retail gasoline prices began heading lower and settled at $2.10 per gallon by May 30 (Memorial Day holiday). As crude oil prices started rising again by mid-May, so did retail prices. With crude oil futures prices on the New York Mercantile Exchange (NYMEX) hovering near $60 per barrel in recent days, gasoline prices surpassed the April peak on July 11, with the U.S. average price for regular gasoline reaching a new all-time high (unadjusted for inflation) of $2.33 per gallon. According to the most recent issue of the Short-Term Energy Outlook, retail gasoline prices are projected to reach an average monthly high of $2.35 per gallon by September, before falling back to $2.20 per gallon by the end of the year.

But the fundamental question remains as to why prices may have shifted to a pattern of twin peaks. Although no one definitive answer is apparent, some new factors may have come into play, including refinery turnarounds during the late winter or early spring, adverse weather, and low gasoline inventories. For instance, in recent years, a late or prolonged winter caused an extended focus on distillate production, as well as delays in refinery maintenance schedules, which, in turn, caused delays in increased refinery production of gasoline, resulting in a slower seasonal build in gasoline inventories. Consequently, these factors set the stage for market concerns about whether sufficient supplies would be available during the peak demand period, driving up gasoline prices prior to the start of the summer driving season. Similarly, if gasoline demand surges more than expected in late summer, gasoline prices may peak beyond the typical July/August period, as refiners, expecting ample supplies, may have shifted their product yields toward distillate fuel (heating oil) earlier than usual. As long as gasoline markets remain tight, greater price volatility can be expected. Storms, refinery outages, pipeline breaks, and surges in demand will usually generate a larger price response when incremental available supplies are limited. Until spare capacity is restored throughout the gasoline supply chain, or inventories are rebuilt to higher levels and located efficiently, the recent trend of two gasoline price peaks may become commonplace.

U.S. Average Retail Gasoline Price Increases 10 Cents
The U.S. average retail price for regular gasoline increased this week by 10.2 cents from the previous week to an all-time high (unadjusted for inflation) 232.8 cents per gallon as of July 11, 41.1 cents higher than this time last year. This is the sixth week in a row that prices have increased. Prices were up throughout the country, with the Midwest seeing the largest regional increase of 12.2 cents to reach 231.6 cents per gallon. East Coast prices rose by 9.7 cents to 231.1 cents per gallon. California prices, the highest in the nation, increased 6.8 cents to 252.5 cents per gallon, which is 33.2 cents higher than this time last year. The West Coast saw a price increase of 6.8 cents to 247.9 cents per gallon.

Retail diesel fuel prices were up 6.0 cents last week to 240.8 cents per gallon, reaching another nominal all-time high. Prices were up throughout the country, with the Rocky Mountains seeing the largest regional increase of 8.0 cents to 240.8 cents per gallon. California prices, the highest in the nation, rose by 3.5 cents to 258.9 cents per gallon, which is 47.6 cents higher than this time last year.

Propane Inventories Report Solid Gains
Primary stockholders posted solid gains across all regions last week, boosting U.S. inventories of propane up to an estimated 55.5 million barrels as of July 8, 2005. For this time of year, the Nation's primary stockpile of propane remains at an adequate level that continues on a path near the upper boundary of the average range. The East Coast region posted its first increase in three weeks with a 0.3-million-barrel gain, although inventories continue to lag below the average range for this time of year. The Midwest and Gulf Coast regions posted solid weekly gains of 0.6 million barrels and 1.6 million barrels, respectively, while the combined Rocky Mountain/West Coast regions continued higher with a 0.1-million-barrel gain during this same time. Except in the East Coast, all of the major propane-consuming regions show inventories near the upper limits of their respective average ranges for this time of year. Propylene non-fuel use inventories inched higher for the first time in three weeks with a 0.1-million-barrel gain that put inventories at 5.1 million barrels, a level that accounted for a slightly lower 9.2 percent share of total propane/propylene inventories, compared with the prior week's 9.4 percent share.

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