Released on September 21, 2005
(Next Release on September 28, 2005)

Again?
On the same day the Energy Information Administration (EIA) reported that retail gasoline prices dropped 16.9 cents per gallon from the previous week, the largest ever weekly drop in retail gasoline prices, the New York Mercantile Exchange (NYMEX) reported the largest ever one-day rise in crude oil futures prices totaling more than $4 per barrel. This situation clearly points out the roller-coaster effect hurricanes are having on petroleum markets this summer. Just as gasoline markets were beginning to readjust to the effects of Hurricane Katrina, crude oil markets were beginning to react to the potential effects of Hurricane Rita.

While U.S. retail gasoline prices were still above the pre-Hurricane Katrina level at 278.6 cents per gallon as of September 19, compared with 261.0 cents per gallon on August 29, the drop in retail gasoline prices over the last two weeks measured back-to-back records totaling more than 28 cents per gallon. But the run-up in crude oil and gasoline futures prices on the NYMEX on September 19 could alter the recent trend in U.S. retail gasoline prices in coming days. While the current projected path of Hurricane Rita as of Wednesday morning put it south of some of the major oil-producing areas in the Gulf of Mexico, some production platforms have already been evacuated as a precautionary measure. Moreover, if Hurricane Rita remains strong, and follows a more northerly path towards the western portion of the Gulf of Mexico, an area not materially affected by Hurricane Katrina, the impact could be significant as new areas of offshore as well as onshore petroleum infrastructure would be impacted. With Hurricane Rita headed towards possible landfall in Texas, several major refining centers may also be at risk. Of Texas’ 26 refineries, 18 are located near the Gulf of Mexico. The combined crude oil distillation capacity of these refineries totals 4.0 million barrels per day, about 23 percent of the nation’s crude oil refining capacity. While not all of this capacity would be affected under any scenario, it does point out how much refining capacity is at risk.

Just as many oil analysts were beginning to catch their breath again as crude oil prices reached their lowest settlement price last Friday ($63.00) since August 5, Hurricane Rita’s potential for creating additional disruption to supplies has caused prices to rise once again. Whether this will cause retail gasoline prices to surge dramatically in the near future is still uncertain. However, with oil markets already tight prior to Hurricanes Katrina and Rita, these hurricanes highlight how vulnerable oil markets currently are. Until refining capacity and production capacity grow faster than demand, thus increasing spare capacity, oil markets will likely remain tight and vulnerable to supply disruptions, whether caused by weather, foreign production disruptions, or some other cause.

For the latest information on how oil infrastructure is being impacted in the aftermath of Hurricane Katrina, see EIA’s Daily Report and more detailed situation reports from the Office of Electricity Delivery & Energy Reliability.

U.S. Average Retail Gasoline Drops Another 17 Cents
The U.S. average retail price for regular gasoline decreased by 16.9 cents to 278.6 cents per gallon, the largest one-week price decrease ever recorded on EIA’s weekly price survey. This is the second week in a row that retail gasoline prices have experienced a record one-week decline in prices. This week’s price is still 92.0 cents higher than this time last year. Prices were down throughout the country, with the Midwest and the East Coast seeing the largest price declines of 21.6 cents and 20.0 cents per gallon, respectively. The West Coast averaged 294.6 cents per gallon, with the average price in California at 295.4 cents per gallon. The Central Atlantic average price was not far behind, averaging 294.4 cents per gallon.

Retail diesel fuel prices fell 11.5 cents to reach 273.2 cents per gallon. Prices were down across the country, with the Midwest region seeing the largest regional decrease of 13.4 cents to average 264.8 cents per gallon, the lowest regional price in the country. The West Coast had the highest regional price, averaging 298.5 cents per gallon after falling 10.8 cents. California prices averaged 306.0 cents per gallon after dropping 9.8 cents.

Propane Inventories Move Higher
Following three consecutive weekly declines, U.S. inventories of propane posted a 2.0-million-barrel gain last week that put inventories at an estimated 66.2 million barrels as of September 16, 2005. Last week’s gain coincided with industry reports of petroleum infrastructure returning to service following earlier shutdowns from the effects of Hurricane Katrina. While East Coast inventories remained unchanged last week, Gulf Coast inventories reported a surprisingly large 1.6-million-barrel gain, followed by the Midwest with a 0.2-million-barrel increase during this same time. The combined Rocky Mountain/West Coast regions reported inventories 0.2 million barrels higher last week. Propylene non-fuel use inventories fell 0.1 million barrels last week to account for a lower 6.5 percent share of total propane/propylene inventories, compared with the prior week’s 6.9 percent share.

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.