Released on April 4, 2007
(Next Release on April 11, 2007)

Spring Break
Once again "Spring Break" is upon us, an annual rite for thousands of college students, families and others who partake in a southward migration to the warm weather, sunny days and ocean breezes that have always been the major lure for those wanting to escape the memory of winter. While some people opt for ocean cruises, others spend their time visiting theme parks or just lying on the beach. Regardless of the type of activity, getting there usually involves a car. With this mass migration occurring mostly during April, it would be logical to expect April gasoline demand to show a seasonal rise over March levels.

For years, the typical summer driving season was considered to occur between the Memorial Day and Labor Day holidays, with peak summer gasoline demand occurring sometime after the Fourth-of-July holiday. While this characterization still holds, in recent years, demand patterns have shifted somewhat to include more robust levels of gasoline demand earlier in the season with a pre-summer peak in gasoline prices. As the figure below illustrates, a significant increase in gasoline demand usually occurs between the months of March and April. Since the year 2000, the median increase has been about 100,000 barrels per day, or somewhere in the range between 1.0-1.5% of total demand.

But, how will gasoline markets fare during April and beyond in light of tight gasoline supplies and recent geopolitical tensions? At this juncture, gasoline markets are beginning to set in motion the traditional supply mechanisms necessary to meet expected peak summer gasoline demand. As mentioned in last week's TWIP, two key statistics to watch are crude oil inputs to refineries and total gasoline imports. Both of these forces will be crucial in determining what level of gasoline market balance to expect in the near and longer terms. Counter to market expectations, crude oil inputs at refineries for the week ending March 30 fell by 115 thousand barrels per day from the prior week, keeping crude oil inputs short of the 15 million-barrels-per-day threshold that they have stayed below since January 12. At the same time, the refinery utilization rate remained unchanged at 87.0 percent, signaling a slower-than-expected return of refinery capacity from scheduled maintenance and unplanned outages. Also, total gasoline imports (finished gasoline plus blending components) fell last week, down 125 thousand barrels per day following a large gain just two weeks earlier. Consequently, as gasoline demand began to grow in earnest in April, gasoline supply has failed to keep pace, resulting in continued significant stock declines and sharp upward pressure on gasoline prices in recent weeks. Nevertheless, while the short term outlook for gasoline markets appears to be tight, the longer term outlook remains unclear. Thus, spring breakers will most likely notice higher gasoline prices during April, compared with last year. Following spring break, however, Memorial Day, Independence Day, and Labor Day vacationers may face different, possibly softer, markets.

Gasoline and Diesel Prices Both Up Significantly
Gasoline prices saw another significant increase for the week of April 2, 2007, jumping 9.7 cents to 270.7 cents per gallon. This is the ninth consecutive week of increases; prices are now 11.9 cents per gallon higher than at this time last year. All regions reported higher prices. East Coast prices were up 9.6 cents to 267.1 cents per gallon, while Midwest prices rose 9.6 cents to 261.4 cents per gallon. The Gulf Coast saw the largest regional increase, with prices up 12.3 cents to 256.5 cents per gallon. In the Rocky Mountains, prices increased 8.1 cents to 261.9 cents per gallon. West Coast prices were up 8.0 cents to 309.6 cents per gallon, with the average price for regular grade in California up 7.6 cents to 322.8 cents per gallon, 48.5 cents per gallon above last year's price.

Retail diesel prices also increased this week, rising 11.4 cents to 279.0 cents per gallon. Prices are now 17.3 cents per gallon higher than at this time last year. All regions reported price increases. East Coast prices rose 10.7 cents to 276.4 cents per gallon. The Midwest saw the largest jump, with prices up 12.5 cents to 278.0 cents per gallon. The Gulf Coast saw an increase of 12.3 cents to 276.6 cents per gallon and Rocky Mountain prices were up 10.4 cents to 288.4 cents per gallon. Prices on the West Coast saw an increase of 8.2 cents to 288.5 cents per gallon. California prices rose 7.0 cents to 293.9 cents per gallon, and are 12.7 cents per gallon higher than at this time last year.

Propane Inventories Report Modest Decline
U.S. inventories of propane reported a modest 0.1 million-barrel decline last week, finishing the 2006-07 heating season at an estimated 25.1 million barrel as of March 30, 2007, the lowest level for this period since 2003. The March stockdraw averaged about 3.6 million barrels, a level slightly above the most recent 5-year average level despite warmer-than-normal temperatures during the month. Moreover, the seasonal stockdraw, (October through March) averaged an above 46.0 million barrels, compared with the most recent 5-year average for this period of nearly 38.0 million barrels. Weekly inventory activity showed a 0.2-million-barrel gain in the East Coast, while inventories in both the Midwest and Gulf Coast regions reported weekly declines of 0.3 million barrels and 0.1 million barrels, respectively. The combined Rocky Mountain/West Coast region remained unchanged during this same time. Propylene non-fuel use inventories also remained unchanged during this same period, but accounted for a slightly lower 10.8 percent share of total propane/propylene inventories, compared with the prior week's share of 10.9 percent.

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