Released on June 14, 2006
(Next Release on June 21, 2006)

That’s Why They Play the Games
With the 2006 World Cup underway, much of the world’s attention will focus on the results of the month-long tournament. While the outcome of some games may appear obvious before the game is played, upsets will inevitably occur. While solid analysis of all relevant factors might cause one team to be labeled a heavy favorite in a particular game, unseen developments or miscalculations can lead to a different outcome than the analysis would have predicted. The same can be said about oil markets, and, in particular, the U.S. gasoline market this summer.

EIA and some other analysts expect gasoline prices to fall somewhat over the course of the summer. One of the principal factors supporting this view is the fact that average wholesale gasoline margins (the average spot price of gasoline in the U.S. minus the price for West Texas Intermediate crude oil) have been significantly higher than in recent years since at least mid-March of this year. As the graph below indicates, the difference between the average U.S. wholesale price for regular gasoline and the price of West Texas Intermediate has historically been less than 40 cents per gallon most of the time. Earlier this year, the margin went above 60 cents per gallon, and while it has dropped some, is still currently above 50 cents per gallon. Except during the aftermath of Hurricanes Katrina and Rita last fall, and in May 2004, the wholesale margin has never been this high in recent years.

However, other analysts see a different outcome for gasoline prices this summer. These analysts envision continued tightness in U.S. gasoline markets leading to wholesale margins staying at elevated levels, or even possibly increasing some during this summer. Analysts predicting this outcome point to declines in gasoline production earlier this year vs. last year (see the gasoline production chart on the Gasoline page of This Week In Petroleum) helping to keep gasoline inventories relatively low and the market tight. Record gasoline imports have kept inventories from being even lower in recent weeks, and some market observers think that gasoline imports may not continue at such strong volumes. If not, this would put increased pressure on domestic refiners and blenders to keep their volumes high enough to supply the expected increase in demand during July and August. This scenario would likely lead to wholesale margins remaining high, or even perhaps going higher, especially if unplanned refinery outages occur this summer.

Whether gasoline prices show a downward trend this summer or an upward one remains to be seen. Solid analysis of the gasoline market could point to either scenario. But just as World Cup games are decided on the field, rather than by analysts, gasoline market observers will be keenly watching for the outcome for gasoline prices this summer.

U.S. Average Retail Gasoline Prices Add 1.4 Cents
The U.S. average retail price for regular gasoline increased by 1.4 cents last week to 290.6 cents per gallon as of June 12, which is 77.6 cents higher than last year. Prices rose for the second week in a row across most of the country. The Gulf Coast saw the largest price increase of 4.1 cents to 280.5 cents per gallon. West Coast prices remained the highest in the nation, falling 3.9 cents to 316.2 cents per gallon, while California prices fell 4.4 cents to 322.5 cents per gallon. The East Coast saw a price increase of 2.7 cents to reach 290.1 cents per gallon.

Retail diesel fuel prices rose 2.8 cents to reach 291.8 cents per gallon as of June 12, which is 64.2 cents higher than last year. Prices were mixed throughout the country, with the Gulf Coast seeing the largest increase of 4.3 cents to 284.8 cents per gallon. West Coast prices remained the highest in the country, falling 1.0 cent to 314.9 cents per gallon, while California prices also fell 1.0 cent to 321.7 cents per gallon. East Coast prices gained 2.8 cents to 290.9 cents per gallon.

Weekly Propane Build Continues Strong
Propane stockholders continued the recent trend of relatively strong builds with a 1.3-million-barrel gain last week that put the nation’s inventories of propane at an estimated 42.5 million barrels as of June 9, 2006. Regional gains were reported across all the major areas last week with East Coast inventories up 0.2 million barrels, while the Midwest and Gulf Coast regions reported gains of 0.4 million barrels and 0.6 million barrels, respectively. During this same time, the combined Rocky Mountain/West Coast regions reported a 0.1-million-barrel increase. Propylene non-fuel use inventories increased by 0.1 million barrels last week and accounted for a 7.3 percent share of total propane/propylene inventories, unchanged from the prior week’s share.

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