Released on June 1, 2006
(Next Release on June 7, 2006)

Summertime
While many of us were not born when Ira Gershwin and DuBose Heyward penned the lyrics for the song “Summertime” in the opera “Porgy and Bess,” some of us are familiar with the chorus, which goes “Summertime, And the livin’ is easy.” However, for those of us who fill up our vehicles in the summertime, the rise in gasoline prices during the summer can seem to make life not so easy.

Next Tuesday (June 6), EIA will release our latest outlook for gasoline prices this summer. But, as EIA predicted in the April 19, 2006 edition of This Week In Petroleum, retail prices have been dropping the last couple of weeks, and the main reason has been an increase in gasoline production. While some of the increase in production has been the result of refineries beginning to return to full operation following maintenance (the refinery utilization rate for the week ending May 26, 2006 reached the highest percentage since Hurricane Katrina), some of the increase has been from blenders. As the graph below indicates, imports of gasoline blending components have surged since mid-April, more than doubling the amount imported in recent years for this time of year. Eventually, imported gasoline blending components are blended into finished gasoline and included as production at that point in the process. Some analysts have been surprised by the gasoline production data reported in the Weekly Petroleum Status Report (WPSR) in recent weeks, but these data include blending components that are blended into finished gasoline, and it makes sense that production would be relatively high given the recent surge in imports of gasoline blending components. While, certainly, some of the increase in imports of blending components is due to reformulated gasoline being produced at blender terminals using ethanol rather than in past years when reformulated gasoline was blended with MTBE at the refinery, some of the increase is due to an actual increase in the need for imports to enable supply to meet demand.

But even as gasoline production has increased, helping to add supply and put downward pressure on retail gasoline prices the last two weeks, crude oil prices have remained above $70 per barrel in recent days, and the wholesale price of gasoline has started to rise once again. Gasoline demand for the four weeks ending May 26 averaged over 9.3 million barrels per day, an increase over last year, despite average retail prices in May being 75 cents per gallon higher than they were a year ago. Whether wholesale gasoline prices continue to increase, and thus put upward pressure on retail prices in coming weeks will depend on how well gasoline supply will grow to match the usual seasonal surge in gasoline demand during the summer. But, certainly, gasoline consumers are hopeful that prices won’t surge dramatically this summer, so, as Ira Gershwin and DuBose Heyward wrote many years ago, living can be somewhat easier this summer than it would be otherwise.

U.S. Average Retail Gasoline Prices Drop 2.5 Cents
The U.S. average retail price for regular gasoline decreased by 2.5 cents last week to 286.7 cents per gallon as of May 29, which is 77.0 cents higher than last year. This is the second week in a row that prices have fallen. Prices were mostly down throughout the country, although prices in the Midwest did rise by 0.3 cent to 276.0 cents per gallon. The Gulf Coast saw the largest price decrease, falling 4.6 cents to 273.7 cents per gallon. West Coast prices remained the highest in the nation, falling 4.4 cents to 320.5 cents per gallon, while California prices were down 5.7 cents to 326.6 cents per gallon. The East Coast saw a price decrease of 3.4 cents to reach 285.9 cents per gallon.

Retail diesel fuel prices fell 0.6 cent to reach 288.2 cents per gallon as of May 29, which is 72.2 cents higher than last year. Prices were mostly down throughout the country, although the Rocky Mountains saw an increase of 2.0 cents to 304.4 cents per gallon. West Coast prices remained the highest in the country, falling 1.4 cents to 316.1 cents per gallon, while California prices edged down 0.7 cent to 322.7 cents per gallon. East Coast prices fell 0.4 cent to 287.3 cents per gallon.

Propane Stockbuild Rebounds
The seasonal stockbuild of U.S. propane inventories rebounded last week following a 2.0-million-barrel gain that lifted inventories to an estimated 39.7 million barrels as of May 26, 2006. Last week’s stock gain was the second highest since the end of the heating season on March 31, 2006, and may signal an end to the past four-week trend of seasonally low stockbuilds. Higher imports last week in most of the major propane regions contributed to the stock gains of 0.4 million barrels in the East Coast, 0.6 million barrels in the Midwest, and 0.9 million barrels in the Gulf Coast. However, propane inventories in the combined Rocky Mountain/West Coast regions remained unchanged during this same period. Propylene non-fuel use inventories edged lower last week by 0.1 million barrels, accounting for a smaller 7.1 percent share of total propane/propylene inventories compared with the prior week’s 7.7-percent share.

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