Released on May 23, 2007
(Next Release on May 31, 2007)

What's In a Name?
In Romeo and Juliet, William Shakespeare wrote the following passage:

Even those of us who have not spent a lifetime studying Shakespeare know that this passage reminds us that what is important is not the name of something, but what it actually is. Although retail gasoline prices are anything but “sweet”, this passage is relevant when talking about them. Much has been made as to whether or not current prices are at an all-time record, even after adjusting for inflation. Based on various historical prices and which parameter is used to adjust for inflation, different answers can be given as to exactly what is the all-time record real price. But whether retail prices are at an all-time inflation-adjusted high or not is less important than the notion that prices are very high for the United States. Whether they are at a record level, or just shy, of one doesn’t change the price of a gallon of gasoline by even one cent.

While everyone agrees that the real price record was set in March 1981, the actual level finds less agreement, as the inflation adjustment process can lead to different outcomes. The Lundberg survey released on May 20 reported that the record inflation-adjusted price was $3.15 per gallon, a level which their survey now exceeds. EIA previously had indicated that in real prices, the March 1981 average was $3.223 per gallon, but this was in 2006 dollars, not in today’s dollars. Recalculating in terms of May 2007 dollars, the monthly average price for regular gasoline in March 1981, using the price collected by the Bureau of Labor Statistics for March 1981 and adjusting for inflation by using the Consumer Price Index, is $3.292 per gallon (see this spreadsheet for the calculation). On this basis, the national average price for regular gasoline just published by EIA of $3.218 per gallon still lies below the real price peak.

However, there are other issues that need to be addressed when a price at a given point in time is compared to a monthly average from more than 26 years ago. Even if a new record is set in the weeks ahead, prices are just one way of comparing the cost of gasoline from one era to another. Another statistic would be to look at the cost of gasoline per mile, and adjusting this for inflation. EIA shows this data in the spreadsheet linked above going back to 1981, when the average fuel efficiency (miles per gallon) was much lower, thus making the cost per mile significantly higher when compared to now. Still another way to compare the cost of gasoline is to compare gasoline expenditures for the economy as a whole as a percentage of Gross Domestic Product (GDP). Using this measurement, gasoline expenditures, even at today’s high prices, represent less than 3.0 percent of GDP, compared to 4.6 percent in 1980 and 1981.

Thus, while the setting of record prices may be immaterial for many drivers, prices are high and are expected to remain high throughout the entire summer, they are not yet at levels which imply the same impact on U.S. households or the economy in general as the level seen in March 1981. Arguing over whether a particular record has been set does not change that fact.

Gasoline Hits New Nominal Record High
For the fourth consecutive week, gasoline prices were up, increasing 11.5 cents to 321.8 cents per gallon as of May 21, 2007. Prices are 32.6 cents per gallon higher than this time last year and have now reached an all-time nominal high for the second week in a row. All regions, except for the West Coast, reported price increases. East Coast prices were up 11.6 cents to 309.7 cents per gallon. In the Midwest, prices jumped 15.4 cents to 332.6 cents per gallon, while prices for the Gulf Coast rose 17.7 cents to 309.2 cents per gallon. The Rocky Mountains saw prices increase 7.2 cents to 326.5 cents per gallon. West Coast prices were down 0.6 cent to 337.2 cents per gallon. The average price for regular grade in California was down 1.4 cents to 343.6 cents per gallon, but remains 11.3 cents per gallon above last year's price.

Retail diesel prices rose last week, breaking a string of four consecutive weeks in which they declined, increasing 3.0 cents to 280.3 cents per gallon. Prices are 8.5 cents per gallon lower than at this time last year. East Coast prices rose 4.0 cents to 279.8 cents per gallon. In the Midwest, prices were up 3.3 cents to 277.3 cents per gallon, while the Gulf Coast saw an increase of 3.4 cents to 274.7 cents per gallon. The only region to see a decrease in price was the Rocky Mountains, where prices were down 0.5 cent to 299.3 cents per gallon. Prices on the West Coast saw an increase of 0.2 cent to 292.1 cents per gallon, while California prices rose 0.3 cent to 295.5 cents per gallon, 27.9 cents per gallon lower than at this time last year.

Propane Posts Moderate Weekly Gain
Propane stockholders continued boosting inventories higher last week but at a relatively moderate 1.4 million barrels, leaving inventories as of May 18, 2007 at an estimated 32.9 million barrels. The rather lackluster build so far this year has contributed to propane inventories tracking slightly below the lower limit of the average range for this time of year. While inventories in the East Coast inched lower last week by 0.1 million barrels, gains were registered in the other major regions that included 1.2 million barrels in the Midwest and 0.2 million barrels in the Gulf Coast. The combined Rocky Mountain/West Coast region posted a 0.2 million-barrel gain during this same time. Propylene non-fuel use inventories turned higher last week and accounted for a slightly larger 7.6 percent of total propane/propylene inventories from the prior week’s 7.2 percent share.

Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.