Released on June 13, 2007
(Next Release on June 20, 2007)

How Does It End?
This was the question on the lips of fans of the television show “The Sopranos” before the final episode was aired this past Sunday evening. Afterwards, fans are still asking the same question. The final scene ended without a clear conclusion, infuriating some fans, while others thought leaving the ending up to individual interpretation made for an interesting finale.

With the unofficial start of summer (Memorial Day weekend) still in the not-too-distant past, many people are wondering how this summer’s gasoline market will turn out. Will we see $4 a gallon prices widespread throughout the country, as some analysts are predicting, or will we see prices continue to fall and approach $2.50 per gallon? Or, somewhere in between? The latest Short-Term Energy Outlook expects prices to decline in June and much of July, before increasing again towards the latter part of summer.

To understand why prices are declining, it may be instructive to review why they increased earlier. Simply put, prices rose as supplies (production plus imports) proved insufficient to meet demand, causing inventories to be drawn fairly rapidly. However, high prices encouraged production and imports to increase and the additional supply has recently built inventories a little more rapidly than normal. This has helped push prices lower, although they remain relatively high as inventories remain below the average range for this time of year, thus indicating a continuing tight market. Generally speaking, the higher retail prices reach, the more supply is going to appear on the market and the more demand growth will be dampened, with prices subsequently falling more dramatically than they would otherwise. This is exemplified in Ohio, where retail regular gasoline prices have dropped by nearly 34 cents in just two weeks!

The opposite behavior is also often true. The deeper prices decline, the more supplies are reduced from their peak and the more demand growth expands, while inventories draw faster than typical (or build slower than normal depending on the time of year). This reduction in supply and increase in demand growth can then lead to sharper increases in prices than would be seen otherwise. While actual changes in supply and demand conditions can alter actual price levels from their projected summer path, EIA still expects prices to continue to decline over the next few weeks before possibly rising again towards the latter part of summer, based on current available evidence. Whether this projection materializes, remains to be seen. But unlike the final scene of “The Sopranos”, this summer’s gasoline story will come to a definitive conclusion.

Gasoline and Diesel Prices Both Down Again
For the third consecutive week, the U.S. average retail price for regular gasoline decreased, falling 8.1 cents to 307.6 cents per gallon as of June 11, 2007. Prices are still 17.0 cents per gallon higher than this time last year. All regions reported price decreases. East Coast prices dropped 4.6 cents to 302.2 cents per gallon. The largest regional decrease was in the Midwest, where prices fell 15.2 cents to 307.3 cents per gallon. Prices for the Gulf Coast decreased 5.8 cents to 296.2 cents per gallon, while Rocky Mountain prices fell 3.5 cents to 322.5 cents per gallon. West Coast prices were down 5.3 cents to 326.5 cents per gallon. The average price for regular grade in California was down 5.4 cents to 332.0 cents per gallon, but remains 9.5 cents per gallon above last year's price.

Retail diesel prices fell for the second consecutive week, decreasing 0.7 cent to 279.2 cents per gallon. Prices are 12.6 cents per gallon lower than at this time last year. East Coast prices fell 0.5 cent to 278.9 cents per gallon. In the Midwest, prices were down 1.1 cents to 275.3 cents per gallon, while the Gulf Coast saw a decrease of 0.7 cent to 274.2 cents per gallon. Rocky Mountain prices were down 2.1 cents to 293.7 cents per gallon. The only region reporting an increase was the West Coast, where prices rose 1.0 cent to 294.1 cents per gallon. California prices rose 2.5 cents to 299.7 cents per gallon, but remain 22.0 cents per gallon lower than at this time last year.

Weekly Propane Build Slows
The seasonal propane build again shifted momentum as primary stockholders added a modest 0.2 million barrels to storage last week that was in sharp contrast with the more robust weekly builds reported over the past several weeks. The modest gain, which moved propane inventories up to an estimated 36.9 million barrels as of June 8, 2007, continued to fall short of moving propane inventories within the lower boundary of average range for this time of year. Regional inventories reported mixed activity last week: down by 0.1 million barrels in the East Coast, unchanged in the Midwest, while up by 0.2 million barrels in the Gulf Coast. The combined Rocky Mountain/West Coast region reported a gain of 0.1 million barrels during this same time. Propylene non-fuel use inventories remained flat last week, accounting for a smaller 7.1 percent share of total propane/propylene inventories from the prior week’s 7.2 percent share.

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