Released on March 8, 2006
(Next Release on March 15, 2006)

A Change of Season
With many parts of the country beginning to show signs of spring, so, too, are oil markets changing seasons. Oil markets generally have two dominant seasons: the heating season during the fall and winter months, and the driving season during the spring and summer months. While winter weather remains in some parts of the country, in many other areas, temperatures are beginning to rise and the first buds are beginning to show up. And right on schedule, gasoline prices are beginning to rise as well.

As EIA predicted in its February 15 edition of This Week in Petroleum, retail gasoline prices have started to increase noticeably over the past week. Retail prices increased by an average of nearly 8 cents per gallon across the country between February 27 and March 6, with the Midwest average price rising by 12 cents per gallon. In EIA’s latest Short-Term Energy Outlook, released on March 7, EIA forecast that the national average retail price of regular gasoline will rise above $2.50 per gallon this driving season, or at least 17 cents per gallon above current prices. With the official first day of spring still 12 days away, there is plenty of time left to see prices increase by this magnitude before or during this year’s driving season.

As EIA has noted before, there are many reasons why we expect gasoline prices to rise. First, EIA does not expect a precipitous drop in crude oil prices, as our forecast calls for the price of West Texas Intermediate crude oil to stay above $60 per barrel through the summer months. Strong global demand, combined with the potential for continued supply disruptions in many key producing areas, is expected to keep crude oil prices from falling dramatically. However, most of the reasons why EIA expects gasoline prices to continue to rise this upcoming driving season relate to the gasoline market.

Primary among these factors is the seasonal rise in gasoline demand. As certain as the sun rises in the east and sets in the west, gasoline demand will rise as warm weather arrives. As people begin to take their vacations and their weekend trips during the spring and summer, gasoline demand inevitably increases. And, as demand rises, prices usually follow as well. However, an additional factor potentially impacting gasoline prices this summer may be the elimination of MTBE as a gasoline additive and the concurrent switch to ethanol. EIA published an analysis on this topic on February 22 that provides the details. The analysis concludes that the complexity of the transition away from MTBE-blended reformulated gasoline may give rise to local imbalances between supply and demand and associated price surges during the change.

So, as oil markets shift from the heating season to the driving season, analysts will shift their focus towards gasoline. With the first week of a sharp gasoline price increase already behind us, and with the first day of spring still nearly two weeks ahead, it does appear that gasoline consumers should prepare for higher gasoline prices this upcoming summer.

U.S. Average Retail Gasoline and On-Highway Diesel Prices Rise Over 7 Cents
The U.S. average retail price for regular gasoline gained 7.7 cents to 233.1 cents per gallon as of March 6, which is 33.2 cents higher than last year. Prices were up throughout the country, with the Midwest seeing the largest increase of 12.0 cents to 237.9 cents per gallon. East Coast prices also gained 5.2 cents to 228.7 cents per gallon. West Coast prices remained the highest in the nation, adding another 3.9 cents to average 242.2 cents per gallon. California prices rose 4.1 cents to 248.0 cents per gallon, 25.1 cents higher than this time last year.

Retail diesel fuel prices increased by 7.4 cents to reach 254.5 cents per gallon as of March 6, which is 37.7 cents higher than last year. Prices were up throughout the country, with West Coast prices, still the highest regional prices in the nation, seeing the largest increase of 8.8 cents to 271.1 cents per gallon. Midwest prices gained 8.3 cents to 250.0 cents per gallon, while East Coast prices added 7.8 cents to 257.1 cents per gallon.

Residential Heating Oil Prices Increase While Propane Prices Decrease Slightly
Residential heating oil prices increased for the period ending March 6, 2006. The average residential heating oil price gained 3.1 cents last week to reach 244.3 cents per gallon, an increase of 35.4 cents from this time last year. Wholesale heating oil prices increased by 9.7 cents to reach 189.1 cents per gallon, an increase of 33.0 cents compared to the same period last year.

The average residential propane price decreased 0.6 cent, to reach 199.1 cents per gallon. This was an increase of 27.7 cents compared to the 171.4 cents per gallon average for this same time last year. Wholesale propane prices decreased 2.4 cents per gallon, from 98.7 cents to 96.3 cents per gallon. This was an increase of 8.3 cents from the March 7, 2005 price of 88.0 cents per gallon.

Propane Inventories Report Above Average Monthly Draw
Propane inventories defied February’s above-normal temperatures with a monthly stockdraw that was nearly 26 percent above the average stockdraw reported over the most recent 5-year period. Propane inventories fell by 11 million barrels during February, a near-record for that month, putting the nation’s primary supply of propane at an estimated 36.3 million barrels as of March 3, 2006. Although temperatures were slightly above average in many parts of the nation last month, a higher proportion of propane demand during this period was met by drawing down inventories, given the above average level of inventories at the beginning of February.

Last week, propane inventories fell by 1.5 million barrels, as slowly rising temperatures acted to moderate the weekly stockdraw. East Coast inventories fell by 0.5 million barrels last week, while inventories in the Midwest dropped by 0.6 million barrels. Gulf Coast stocks declined by 0.4 million barrels last week, while inventories in the combined Rocky Mountain/West Coast regions inched lower by 0.1 million barrels. Propylene non-fuel use inventories jumped by 0.8 million barrels last week to account for an 11.0 percent share of total propane/propylene inventories, up from the prior week’s 8.5 percent share.

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