Released on August 17, 2005
(Next Release on August 24, 2005)

Pain At The Pump
With retail gasoline prices increasing between August 8 and August 15 by the largest amount ever since EIA instituted its weekly retail price survey (August 1990), almost every driver experienced a shock last week when they went to fill up their car or truck. As noted in more detail below, every part of the country experienced an increase of at least 10 cents per gallon, with some regions seeing increases of more than 20 cents per gallon. While gasoline prices have been generally rising for a long time, the magnitude of the latest increase has taken many people by surprise and increased the pain they feel when they fill up their vehicle. So, why have prices increased so dramatically in the last few days?

The jump in retail prices is following recent increases in the spot price (the price at which refiners and importers sell into the wholesale market) for gasoline. From July 26 to August 12, a span of just 2 1/2 weeks, the average spot price of gasoline jumped by 40 cents per gallon, averaging nearly $2.04 per gallon as of August 12. With retail prices up about 25 cents per gallon over the last 2 weeks, it is likely that retail prices rise further over the next few weeks, assuming no significant change in the spot price of gasoline over the next several days. Of course, this leads to the question of why the spot price of gasoline has risen so sharply.

Some of the increase is due to recent increases in crude oil prices. While the spot price of gasoline rose by 40 cents per gallon from July 26 to August 12, the price of West Texas Intermediate (WTI) crude oil, the grade to which most U.S. crude oil is benchmarked, rose by $7.66 per barrel, or about 18 cents per gallon. The remainder of the spot gasoline price increase is due to the reduced supply of gasoline available due to recent refinery outages, just as demand is increasing during the last few weeks of summer vacation for many people. There have been a number of reports recently about outages at refineries across the country, which reduced the amount of gasoline that can be produced. With this occurring at the same time gasoline demand is at its seasonal peak, every gallon of gasoline has become that much more expensive. However, refinery outages are often temporary and as these refineries come back into full production mode, as expected, over the longer run, spot gasoline price movements should more closely track changes in crude oil prices.

In summary, increases in crude oil prices, along with a number of refinery outages that reduced the supply of gasoline, have resulted in higher pump prices. Prices are likely to continue to increase over the next few weeks, but may drop some after Labor Day, as gasoline demand typically falls once people go back to school and work. Of course, this assumes that refineries are up and running again and that hurricanes or other factors don’t reduce crude oil production. But at least for the next few weeks, it appears that consumers will continue to experience pain at the pump when they fill up.

U.S. Average Retail Gasoline Increases by 18 Cents
The U.S. average retail price for regular gasoline increased by 18.2 cents, the largest one-week increase on record, to 255.0 cents per gallon, the highest nominal price ever recorded. This is 67.5 cents higher than this time last year. Prices were up throughout the country, with the Gulf Coast seeing the largest increase of 20.6 cents to 248.8 cents per gallon, while the Rocky Mountain region had the lowest regional price in the country. The highest regional price remained on the West Coast, where prices gained 10.2 cents to 266.9 cents per gallon. The average price in California gained 11.5 cents to 271.6 cents per gallon.

Retail diesel fuel prices also experienced the largest one-week run-up on record, rising 16.0 cents last week to 256.7 cents per gallon, an all-time high (not adjusted for inflation). Prices were up throughout the country, with the Midwest seeing the largest regional increase of 18.8 cents to 252.4 cents per gallon. The West Coast had the highest regional prices, up 9.0 cents to 289.1 cents per gallon, and California prices gained 9.9 cents to 304.2 cents per gallon. Gulf Coast prices were the lowest in the nation, increasing 15.8 cents to average 248.1 cents per gallon.

Propane Inventories Resume Seasonal Build
U.S. inventories of propane, following mediocre gains from the prior week, resumed their seasonal summer build last week with a 2.0-million-barrel addition that put inventories at an estimated 65.3 million barrels as of August 12, 2005. With last week’s gains, the nation’s primary supply of propane remains 12.3 million barrels, or about 23 percent, above the same period this time last year using weekly data. Strong imports into the Gulf Coast region continued to be the driving force behind the weekly build that pushed the region’s inventories higher by 1.5 million barrels to 37.6 million barrels. Midwest inventories reported a weekly gain of 0.6 million barrels, while East Coast inventories slipped lower by 0.1 million barrels during this same time. The combined Rocky Mountain/West Coast regions added 0.1 million barrels to inventories last week, while propylene non-fuel use inventories remained unchanged at 5.2 million barrels. Propylene non-fuel use inventories accounted for a slightly less 8.0 percent share of total propane/propylene inventories, down from 8.2 percent from the prior week.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.