Released on August 10, 2005
(Next Release on August 17, 2005)

A Safe Landing?
Early yesterday (August 9), the space shuttle Discovery landed safely, and many Americans watching the landing let out a collective sigh of relief, happy that the astronauts were safely back on the ground. But many Americans are also wondering when gasoline and diesel prices will start heading down and at what levels these prices will finally “land” when they do drop. Or, more specifically, will retail gasoline and diesel prices ever fall below $2 per gallon again?

While “ever” is a long time, EIA’s recently released Short-Term Energy Outlook estimates that retail gasoline prices will continue to average above $2.10 per gallon on a monthly basis through 2006, while diesel fuel prices are expected to average above $2.20 every month between now and the end of 2006. Of course, this forecast is predicated on the notion that the price of West Texas Intermediate crude oil will not average significantly below $55 per barrel through 2006. Should crude oil prices drop below our forecast over the next 16 months or so, we could see retail gasoline and diesel prices drop below $2 per gallon, but absent such a dramatic drop, it does appear that retail gasoline and diesel prices will remain above $2 per gallon for the foreseeable future.

Over the next few weeks, EIA expects retail gasoline prices to continue to rise as recent increases in spot prices get passed through to the pump. As reported in more detail below, prices jumped 7.7 cents per gallon between August 1 and August 8, yet EIA estimates that the average spot price of gasoline across the United States increased by about 21 cents per gallon between July 26 and August 5. As EIA analysis shows, it takes about 2 weeks for changes in the spot price of gasoline to begin to show up at the pump and it is mostly passed through after 4 weeks. This implies more price increases lie ahead for the next few weeks. With gasoline demand expected to be strong through Labor Day, prices could increase throughout August and into the holiday weekend. After Labor Day, however, retail gasoline prices often decline, as demand drops with people going back to work and school. However, last year, the average retail price increased over the second half of September and all of October, rising a total of 18.9 cents per gallon between September 13 and October 18, largely due to the impacts from Hurricane Ivan, which reduced oil production in the Gulf of Mexico for several weeks and closed some refineries in the Gulf of Mexico area temporarily. With forecasts calling for an active hurricane season this year, it leaves open the possibility that retail gasoline prices could continue to surge beyond Labor Day, but it would likely take a major hurricane disrupting supplies in the Gulf of Mexico or a continuation of the rash of refinery outages experienced lately here in the United States for this to occur.

For now, even as many Americans continue to complain about astronomical gasoline prices, prices are expected to go even higher in the near-term. When and where they “land” is still an open question, but it is likely a “safe landing” will remain above $2 per gallon, at least over the next 16 months or so.

U.S. Average Retail Gasoline Price Shoots Up Almost 8 Cents
The U.S. average retail price for regular gasoline increased by 7.7 cents to 236.8 cents per gallon, the highest nominal price recorded. Prices were up throughout the country, with the Midwest seeing the largest increase of 11.0 cents to 232.9 cents per gallon. The Gulf Coast also gained 10 cents to reach 228.2 cents per gallon, the lowest regional price in the country. The highest regional price remained on the West Coast, where prices gained 5.6 cents to 256.7 cents per gallon. The average price in California was even higher, gaining 5.2 cents to 260.1 cents per gallon, 50.9 cents higher than last year.

Retail diesel fuel prices were up 5.9 cents last week to 240.7 cents per gallon, which was just 0.1 cent lower than the all-time high recorded on July 11. Prices were up throughout the country, with the West Coast seeing the largest regional increase of 20.7 cents to 280.1 cents per gallon, obliterating last week’s previous all-time high. California prices were up 28.6 cents to 294.3 cents per gallon. Gulf Coast prices were the lowest in the nation, increasing 4.4 cents to average 232.3 cents per gallon.

Propane Weekly Build Slows
Following the prior week’s sharp rise in inventories, U.S. propane stockholders managed only a 0.7-million-barrel stockbuild last week that put inventories, as of August 5, 2005, at an estimated 63.3 million barrels. In stark contrast with recent trends, the weekly build was almost entirely concentrated in the East Coast, which reported a 0.5-million-barrel gain, followed by a modest 0.1-million-barrel increase in the Midwest region. However, the Gulf Coast region reported inventories essentially flat last week, while the combined Rocky Mountain/West Coast regions also remained unchanged during this same time. It appears that a high level of imports in recent weeks into the East Coast has fueled the strong stockbuilds in that region, while the Midwest and Gulf Coast regions continue to report more modest imports, partially accounting for the more lackluster inventory activity in those regions last week. Propylene non-fuel use inventories fell 0.2 million barrels last week to 5.2 million barrels, a level accounting for a smaller 8.2 percent share of total propane/propylene inventories, compared with the prior week’s 8.6 percent share.

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