Released on May 16, 2007
(Next Release on May 23, 2007)

Gasoline FAQs
Regular readers of This Week In Petroleum are used to seeing non-oil-related comments tied to oil markets at the beginning of each issue. However, with the U.S. average retail price for regular gasoline reaching a new record (unadjusted for inflation), it is best to get straight to the facts, as EIA sees them. Judging from the way our phones have been ringing off the hook, there is a high level of interest in gasoline prices. Below are some of the frequently asked questions (FAQs) about gasoline markets addressed to EIA in recent days.

Why are gasoline prices so high?
Gasoline inventories have recently been drawn down at a dramatic rate to bridge the gap between supply and demand (see Figure 4, in the Weekly Petroleum Status Report (WPSR)). Over 12 consecutive weeks during February, March, and April, total gasoline inventories declined by a cumulative total of more than 34 million barrels (15 percent). This is the sharpest decline in gasoline inventories over a consecutive 12-week period in EIA’s recorded historical data. Lower import levels than last year and numerous refinery outages, due to both maintenance and unexpected incidents, have slowed supply growth, while at the same time, demand continues to grow, even with prices around $3 per gallon. While demand growth has slowed somewhat in recent weeks, over the four-week period ending May 11, preliminary data suggests that gasoline demand is still 1.0 percent (or nearly 100,000 barrels per day) greater than year-ago levels

Is there an end in sight or will gasoline prices continue to rise all summer?
Although gasoline inventories are expected to remain lower than normal throughout the summer, high prices have encouraged more supply and inventories have increased slightly the last two weeks. Domestic gasoline production has increased by more than 500,000 barrels per day in the last three weeks and total gasoline imports (including blending components) during the week ending May 11, rose above 1.5 million barrels per day, making that week the fifth highest weekly import volume ever and the highest since last May. Should imports continue at such levels and more domestic refinery capacity come back online, supplies will improve and wholesale prices could come down. However, with gasoline inventories likely to remain low all summer, retail prices are expected to remain close to $3 per gallon during the entire summer season. Prices could rise again towards the end of summer if demand surges, as it often does, in late July and August. However, absent any major petroleum infrastructure problems or overseas disruption in supplies, the average national retail price for regular gasoline is not expected to rise much beyond its present range, although a significant spread in regional price is likely to persist.

What can consumers do to help lower gasoline prices? What about boycotts?
Yesterday (May 15), some consumers heeded a call spread through the Internet to not buy gas that day. However, if these consumers simply shift their gasoline purchases to a different day, while continuing to use the same amount of fuel, no reduction in actual consumption of gasoline will have occurred. While EIA “neither formulates nor advocates any policy conclusions,” (see this statement on EIA’s independence), if prices are high due to supply and demand factors, and consumers cannot directly increase supply, reducing demand is left as the main option for consumers.

Gasoline Hits New Nominal Record High
For the third consecutive week, gasoline prices were up, increasing 4.9 cents to 310.3 cents per gallon as of May 14, 2007. Prices are 15.6 cents per gallon higher than this time last year and have now reached an all-time nominal high. All regions reported price increases. East Coast prices were up 2.3 cents to 298.1 cents per gallon. In the Midwest, prices jumped 9.8 cents to 317.2 cents per gallon, while prices for the Gulf Coast rose 4.5 cents to 291.5 cents per gallon. The largest increase was in the Rocky Mountains, where prices increased 10.3 cents to 319.3 cents per gallon. West Coast prices were up 0.5 cent to 337.8 cents per gallon. The average price for regular grade in California was down 1.1 cents to 345.0 cents per gallon, but remains 12.0 cents per gallon above last year's price.

Retail diesel prices fell for the fourth consecutive week, decreasing 1.9 cents to 277.3 cents per gallon. Prices are 14.7 cents per gallon lower than at this time last year. East Coast prices fell 2.3 cents to 275.8 cents per gallon. In the Midwest, prices were down 1.4 cents to 274.0 cents per gallon, while the Gulf Coast saw a decrease of 3.1 cents to 271.3 cents per gallon. The only region to see an increase in price was the Rocky Mountains, where prices were up 0.3 cent to 299.8 cents per gallon. Prices on the West Coast saw a decrease of 1.6 cents to 291.9 cents per gallon, while California prices fell 2.2 cents to 295.2 cents per gallon, 29.0 cents per gallon lower than at this time last year.

Propane Inventories Post Strong Gains
Propane stockholders added 2.8 million barrels to primary storage last week, marking the strongest weekly stock gain seen so far this year. Following last week’s gain, propane inventories moved up to an estimated 31.5 million barrels as of May 11, 2007. Strong gains were reported in all of the major propane consuming regions last week, with the Midwest reporting the largest stockbuild of 1.7 milling barrels, followed by the Gulf Coast with a gain of 0.7 million barrels. East Coast inventories rose by 0.4 million barrels while the combined Rocky Mountain/West Coast region remained unchanged during this same time. Propylene non-fuel use inventories dropped by 0.1 million barrels to account for a 7.2 percent share of total propane/propylene inventories, down from 7.7 percent the previous week.

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