Released on August 30, 2006
(Next Release on September 7, 2006)

Are Current Conditions an Indicator of the Future?
With the Washington Redskins making it to the conference semi-finals last year and adding key players and coaches to the team during the offseason, Redskins fans and some NFL analysts expected great things from the team this year. But after watching opponents outscore the Redskins by 87-17 in the first 3 preseason games, fans are starting to worry that their expectations were set too high. But the team’s dismal performance to date has many people wondering if expectations were set too high. With gasoline and crude oil prices dropping over the past several weeks, many people are wondering if this may be the start of a long downward trend that will lead oil prices to significantly lower levels in the near future.

While it is certainly possible that oil prices could continue the recent trend, dropping significantly over the next few months, there are several reasons why EIA believes the price drop may be limited. First, part of the reason prices have dropped recently is that upward pressure coming from gasoline during its peak demand season has vanished, with U.S. gasoline inventories apparently adequate to get through the upcoming Labor Day weekend, the nominal end of the peak season. Additionally, the lack of any major refinery or petroleum infrastructure damage through August, whether due to hurricanes or other reasons, has kept gasoline markets relatively calm. Thus, with the end of the peak gasoline season behind us and the peak heating fuel season not yet here, the market may be simply reflecting the usual shoulder period forces as it transitions from summer to winter seasons, resulting in an absence of product price pressures.

Nevertheless, as we get closer to the upcoming winter season, any concerns about the future adequacy of heating oil supplies could keep upward pressure on oil prices. With strong global demand for distillate fuel (diesel fuel and heating oil combined), given that diesel fuel markets in Asia and Europe are particularly robust, heating oil prices may rise to attract sufficient imports this winter to balance demand. The fact that diesel fuel prices have not dropped precipitously, along with gasoline, is an indication that the current weakness does not extend to all petroleum product markets. In addition, many of the global situations that concerned oil markets earlier this year have not abated. For example, a United Nations deadline set for Iran to halt its nuclear enrichment program is just two days away, with no signs that Iran will adhere to this deadline. Oil supplies are still being disrupted in Nigeria, concerns about oil production in other parts of the world remain, and the peak of the hurricane season is still ahead. All of these issues could keep oil prices from falling much below $70 per barrel.

While Redskins fans hope that the team’s current performance is misleading, consumers are hoping that the recent price declines are a harbinger of future oil market trends. Whether current trends turn out to be an accurate predictor of future developments remains to be seen, both on the football field and in energy markets. For oil markets, at least, there may be many factors that could arrest or even reverse recent trends.

U.S. Average Retail Gasoline Price Fall Another 8 Cents
The U.S. average retail price for regular gasoline fell 7.9 cents last week to hit 284.5 cents per gallon as of August 28, which is 23.5 cents higher than last year. Prices fell for the third week in a row, to the lowest national average price since April 17, 2006. East Coast prices lost 7.6 cents to 285.7 cents per gallon, while the Midwest saw the largest regional price decrease of 9.8 cents to 276.3 cents per gallon. West Coast prices, still the highest in the nation, fell 5.7 cents to 304.1 cents per gallon, while California prices were 6.4 cents lower at 309.8 cents per gallon.

Retail diesel fuel prices fell by 0.6 cent to reach 302.7 cents per gallon as of August 28, 43.7 cents higher than last year. This is the fourth week in a row that prices have remained over the $3 mark. Prices were mostly down throughout the country, with the Midwest seeing the largest regional decrease of 1.5 cents to 302.6 cents per gallon. The Rocky Mountains, which has the highest regional prices in the country, saw a decrease of 0.3 cent to 334.6 cents per gallon. East Coast prices gained 0.2 cent to 295.5 cents per gallon.

Propane Continues Moderate Build
With only about a month remaining in the normal seasonal stockbuild season for U.S. propane inventories, weekly gains are beginning to show signs of moderation that typically occur about this time of year. U.S. propane inventories recorded a gain of 0.6 million barrels last week, down from the prior week’s 0.9-million-barrel modest gain and the lowest weekly increase since April 14, 2006. As of August 25, 2006, the nation’s primary supply of propane stood at an estimated 63.3 million barrels. Moreover, while propane imports have surged over the last two weeks, inventory gains have lagged these volumes, possibly indicating that some import volumes may have bypassed primary storage and moved directly into private storage. While East Coast inventories remained unchanged last week, inventories in the Midwest and Gulf Coast regions moved up by 0.3 million barrels and 0.1 million barrels, respectively. The combined Rocky Mountain/West Coast regions posted a 0.1-million-barrel increase during this same time. Propylene non-fuel use inventories moved lower by 0.2 million barrels to account for a smaller 4.4 percent share of total propane/propylene inventories, compared with the prior week’s 4.8 percent share.

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