Released on April 5, 2006
(Next Release on April 12, 2006)

In Like a Lion, Out Like A …
Everyone is familiar with the old saying that when it comes to the weather, “March comes in like a lion and out like a lamb.” But when it comes to gasoline markets this year, April may be the key month that might determine the path of prices this spring and summer. With U.S. retail gasoline prices rising by an average of 9 cents per gallon between March 26 and April 3, reaching $2.59 per gallon, gasoline markets are certainly coming in like a lion this month. This increase has caused some consumers to wonder if this is just the beginning of increases that will continue through the upcoming peak driving season, or just a short-lived blip. While this is difficult to know, given the uncertainties in oil and gasoline markets this season, it does appear that April might be a critical month that will set the tone for gasoline prices this upcoming spring and summer.

An important factor influencing gasoline markets this month will be the degree of refinery maintenance. Some analysts are projecting refinery maintenance in April to be much larger than in recent years, both for distillation and upgrading units. Should this projection pan out, this could necessitate significant inventory draws for gasoline in order to meet projected demand. With gasoline inventories typically increasing by about 3 million barrels in April, a significant draw this month could represent a dramatic drop compared to average levels. While gasoline inventories have remained above the average range since the end of January, as of March 31, total gasoline inventories are now only about 1 million barrels above the upper end of the average range. Should gasoline inventories draw another 8 million barrels over the next four weeks (an average draw of 2 million barrels each week), certainly possible if the projections of large refinery maintenance hold true, they would end the month just above the bottom end of the average range. Were such a decline relative to normal levels to occur, upward pressure on prices would be expected. However, should refinery maintenance not be as large as some are expecting, and if some of the remaining refinery outages due to last fall’s hurricanes come back online this month as others expect, then inventories might not draw significantly in April. Should refinery gasoline production keep gasoline inventories from drawing this month, the increase in supplies could limit upward price pressure, perhaps keeping retail prices from continuing to rise throughout the month.

The other key factor that should provide some more clarity by the end of the month about this summer’s gasoline prices will be the transition from MTBE to ethanol in some reformulated gasoline (RFG), particularly along the East Coast and in some cities in Texas. It is expected that due to the removal of the federal oxygenate mandate in early May, refiners, pipelines, and other users of MTBE will have mostly made alternative plans by the end of April. Perhaps by the end of April, we will have also seen a significant shift in volume from the NYMEX RFG futures contract towards the newer RBOB (reformulated gasoline blendstock for oxygenate blending) contract, thus providing more clarity about gasoline futures prices.

Largely because of the two factors cited above (degree of refinery maintenance and the transition to ethanol RFG), April might likely be a critical month in gasoline market developments for this upcoming driving season. While gasoline prices “came in like a lion” at the beginning of April, how they end the month may be a better indicator of the summer driving season ahead.

U.S. Average Retail Gasoline Gains 9 Cents
The U.S. average retail price for regular gasoline added 9.0 cents last week, rising to 258.8 cents per gallon as of April 3, which is 37.1 cents higher than last year. Prices were up throughout the country, with the Gulf Coast seeing the largest increase of 11.4 cents to reach 257.1 cents per gallon. West Coast prices, the highest regional prices in the country, gained 6.3 cents to 267.2 cents per gallon, while California prices rose 7.4 cents to 274.3 cents per gallon, 27.9 cents higher than this time last year. East Coast prices rose 8.5 cents to 258.1 cents per gallon, while Midwest prices were up 10.5 cents to 257.6 cents per gallon.

Retail diesel fuel prices increased by 5.2 cents to reach 261.7 cents per gallon as of April 3, which is 31.4 cents higher than last year. Prices were up throughout the country, with both the West Coast and Midwest seeing the largest regional increase of 5.5 cents to 275.3 cents per gallon and 257.8 cents per gallon, respectively. West Coast prices were still the highest regional prices in the nation, with California prices gaining 8.5 cents to 281.2 cents per gallon.

Propane Stockdraw Falls Short of March Record
Following last week’s modest 0.2-million-barrel stockdraw, U.S. inventories of propane reported an accumulated 7.3-million-barrel stockdraw during March, a level just short of the 7.4-million-barrel March record set in 1999. Despite overall temperatures that were near average during the month, several intense winter storms in some of the major propane heating regions contributed to the near-record drawdown in propane inventories during the last month of the winter heating season. As of March 31, U.S. inventories of propane stood at an estimated 29.0 million barrels, the highest end-of-season level since 2002. The only significant weekly draw occurred in the East Coast, with inventories edging lower by 0.1 million barrels. All of the other major regions, including the Midwest, Gulf Coast, and the combined Rocky Mountain/West Coast regions, remained relatively unchanged during this same period. Propylene non-fuel inventories rose by 0.3 million barrels last week to account for a 9.7 percent share of total propane/propylene inventories, up from the prior week’s 8.6 percent share.

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