Released on June 28, 2006
(Next Release on July 6, 2006)

Peaking At the Right Time
As teams advance in the World Cup, coaches, players, and soccer analysts talk about the importance of peaking at the right time. Teams that peak too soon will falter as they get to the later rounds, while teams that don’t peak soon enough might not even make it to the later rounds. The same can be said about certain aspects of the U.S. oil market, in this case, crude oil inputs to refineries (also called crude runs). With gasoline demand rising in the summer, and the need to store heating oil for use in the upcoming winter, crude runs typically peak during the summer. But, sometimes, it may be important when that peak occurs.

As the first graph below indicates, during the previous 3 years (2003-2005), crude runs peaked in May, June or July (the 2003 peak was for the week ending May 30, the 2004 peak was for the week ending July 23, and the 2005 peak was for the week ending July 1, which was essentially the last week in June). What is noteworthy about the timing of the peak in crude runs is its relationship to the timing of peak summer gasoline prices. As can be seen in the second chart below, in 2003 and 2005, when crude runs peaked in May and the end of June, gasoline prices increased in August, reaching summer peaks (excluding prices following Hurricane Katrina). However, in 2004, when crude runs peaked towards the end of July, gasoline prices did not rise in August, as the increase in crude runs helped bolster gasoline production enough to prevent gasoline prices from rising further towards the end of summer. This is why some analysts are keeping a close eye on the amount of crude oil refineries are using. The steady rise has been especially important recently, as crude runs from March through May were below levels seen in previous years, due largely to the aftereffects of last fall’s hurricanes, despite higher demand for most products. The relatively low runs this spring added upward pressure on product prices, while the recent increases in crude runs have helped to stabilize retail gasoline and diesel prices over the last few weeks.

With gasoline demand for the week ending June 23, 2006 averaging 9.540 million barrels per day, the highest weekly average ever during the month of June and the fifth highest average for any week, refineries will need to continue running at elevated rates to keep gasoline prices from rising significantly higher this year. This is especially the case if imports continue to decline from abnormally high levels. With much of the summer still ahead, it is likely that gasoline demand will climb further in the coming weeks, and domestic production of gasoline will be a critical source of supply. As a result, the amount of crude oil that U.S. refineries use this summer will be a key factor in shaping the path of gasoline prices. This highlights the importance of avoiding significant refinery outages this summer, whether they are caused by hurricanes, power outages, or by any other means.

U.S. Average Retail Gasoline Prices Fall for the Second Week in a Row
The U.S. average retail price for regular gasoline decreased by 0.2 cent last week to 286.9 cents per gallon as of June 26, which is 65.4 cents higher than last year. Prices fell for the second week in a row, with only the Midwest experiencing a price increase of 4.5 cents to 282.1 cents per gallon. West Coast prices remained the highest in the nation despite falling the most this week, dropping 3.6 cents to 309.5 cents per gallon. California prices fell 3.5 cents to 316.3 cents per gallon. East Coast prices dropped 1.9 cents to 285.4 cents per gallon.

Retail diesel fuel prices fell 4.8 cents to reach 286.7 cents per gallon as of June 26, which is 53.1 cents higher than last year. Prices were down throughout the country, with the Rocky Mountains seeing the largest PADD-level decrease of 5.8 cents to 296.0 cents per gallon. West Coast prices remained the highest in the country, falling 4.9 cents to 306.8 cents per gallon, while California prices were down 4.5 cents to 314.0 cents per gallon. East Coast prices fell 4.3 cents to 286.4 cents per gallon.

Propane Build Trails First Half Average
With only one week remaining in the first half of the traditional April through September build season, U.S. inventories of propane lag more than 6 million barrels below the most recent 5-year average build during this period. From April 1st through June 23, 2006, propane inventories gained about 16.8 million barrels, or about 27 percent less than the 5-year average for the April through June period that typically sees 22.9 million barrels added to the nation’s stockpile of propane inventories.

Last week, U.S. propane inventories rose by 1.9 million barrels to 46.7 million barrels as of June 23, 2006, a level that remains near the lower boundary of the average range for this time of year. Regional gains were reported in the Midwest that totaled 1.1 million barrels, while the Gulf Coast region reported a relatively modest 0.7-million-barrel gain. Inventories in the East Coast remained flat last week, while in the combined Rocky Mountain/West Coast regions, inventories edged higher by 0.1 million barrels. Propylene non-fuel use inventories gained 0.1 million barrels last week but retained the same 7.1 percent share of total propane/propane inventories.

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