Released on May 17, 2006
(Next Release on May 24, 2006)

Closing In
Some baseball fans have followed Barry Bonds’ every at-bat as he remains just 1 home run shy of Babe Ruth’s hallowed mark of 714 career home runs. While Babe Ruth’s home run total is not the major league record (Hank Aaron holds the record with 755 career home runs), it does hold significance for many baseball fans. Likewise, some pundits have been closely watching the relationship of U.S. average regular gasoline prices to a $3 per gallon milestone. Reaching a $3-per-gallon U.S. average would not break the record price (unadjusted for inflation) of $3.07 per gallon set immediately following the devastation caused by Hurricane Katrina. Moreover, taking account of both inflation and the improvement in average vehicle fuel economy since the early 1980s, real fuel expenditures per mile driven would remain well below the historical peak level, even if average gasoline prices were to cross the $3 per gallon threshold. Even placed in their proper perspective, however, current gasoline prices are yet another indicator that U.S. and global oil market tightness is unlikely to ease soon.

EIA’s latest retail price survey, for prices as of May 15, showed the U.S. average price of regular gasoline just shy of $2.95 per gallon, up nearly 4 cents per gallon from the previous week, with many parts of the country seeing prices at $3 per gallon or higher. Average spot prices (similar to a wholesale price) for various types of gasoline rose last week, peaking at a level that would suggest the possibility that national average retail prices could continue to rise. However, a sharp decline in spot prices so far this week in various parts of the country may mean that the U.S. average retail price of regular gasoline may remain below $3 per gallon, absent further increases in spot prices.

But whether or not the average price reaches $3 per gallon, driving costs during the heart of the summer vacation season will be higher this year than last. Nevertheless, as the chart below indicates, the increased cost may not be as much as many people think. With summer gasoline prices currently projected to average 34 cents per gallon over last year’s average (see the May 2006 Short-Term Energy Outlook), the average added fuel cost for a 500-mile round trip vacation in a typical vehicle that averages 20 miles per gallon would be about $8.50. With air fares also increasing this year, a family of four would likely see a greater increase in the cost of flying on their vacation than they would see if they drove. But just as it will generate a flurry of sports media activity when Barry Bonds hits home run number 714 and again when he hits number 715, should the average price of regular gasoline reach $3 per gallon, it will generate a lot of news.

U.S. Average Retail Gasoline Prices Gain Almost 4 Cents
The U.S. average retail price for regular gasoline increased by 3.8 cents last week to 294.7 cents per gallon as of May 15, which is 78.4 cents higher than last year. This is the sixth time in seven weeks that prices have risen. Prices were up throughout the country, with the largest regional price increase of 8.3 cents occurring in the Midwest, pushing prices to 286.6 cents per gallon. West Coast prices remained the highest in the nation, gaining 1.0 cent to 325.0 cents per gallon; however, California prices fell by 0.2 cent to 333.0 cents per gallon. The East Coast saw a price increase of 2.4 cents to reach 293.4 cents per gallon.

Retail diesel fuel prices gained 2.3 cents to reach 292.0 cents per gallon as of May 15, which is 73.1 cents higher than last year. Prices were up 2.9 cents per gallon in the Midwest, the highest regional increase, to hit 287.0 cents per gallon. West Coast prices remained the highest in the country, gaining 1.2 cents to 319.2 cents per gallon, while California prices edged down 0.2 cent to 324.2 cents per gallon. East Coast prices were up 2.3 cents to 290.7 cents per gallon, with New England and Central Atlantic average prices topping $3 per gallon.

Propane Inventories Continue Modest Build
U.S. propane inventories continued moderately higher last week with a 1.8-million-barrel increase that put them at an estimated 37.4 million barrels as of May 12, 2006, a level that remains well within the average range for this time of year. Regional gains were recorded in most areas last week, with the Midwest and Gulf Coast showing similar increases of 0.8 million barrels each, while at the same time, the East Coast reported a stock gain measuring 0.1 million barrels. The combined Rocky Mountain/West Coast regions remained unchanged during this same time. Except in the Gulf Coast region, where inventories continued to track slightly below the average range, inventories remain either at or above their average ranges for this time of year in the East Coast and Midwest regions. Propylene non-fuel inventories also continued higher last week, gaining 0.1 million barrels to account for a 7.5 percent share of total propane/propylene inventories.

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.