Released on July 11, 2007
(Next Release on July 18, 2007)

The Second Half
The Major League Baseball All-Star Game, which was played last night, occurs every year at the midpoint of the baseball season. After the “Midsummer Classic,” pennant races heat up in the second half of the summer to determine playoff berths. Much in the same way, the second half of the year determines petroleum market conditions over the winter. In the United States, the end of the summer is the time when gasoline demand reaches its peak and distillate stocks are usually building ahead of winter.

EIA’s Short-Term Energy Outlook (STEO), released yesterday, projects that world oil demand will increase as the year continues. In the STEO, EIA projects global demand will increase by 3.0 million barrels per day between the second quarter of 2007 and the fourth quarter of 2007. Of this, OPEC is projected to supply 1.5 million barrels per day, with the rest met by additional non-OPEC supply and a drawdown of inventories. A recently released outlook by the International Energy Agency (IEA) also points to the likelihood of tightness in the global crude oil market in the third and fourth quarters of 2007. In their report, the IEA raised its global demand forecast and urged OPEC to increase output

Despite projections of higher demand by EIA, the IEA, and many private sector analytical groups, OPEC has maintained that it has no plans to increase production in the third quarter, citing ample crude oil inventories. OPEC’s position is that geopolitical tension and limited refinery capacity are behind currently high prices. EIA data show OPEC-12 production in the second quarter of 2007 was 34.7 million barrels per day, 0.5 million barrels per day lower than OPEC-12 production for the same period in 2006, despite global oil demand increasing by 1.3 million barrels per day over this same time period. As a result, global inventories have been drawn down considerably, relative to normal patterns, over the past several months. EIA estimates Organization for Economic Cooperation and Development (OECD) inventories, which have fallen sharply in terms of days supply since the beginning of the year, would be in the lower part of the 5-year average range by the end of 2007 even if OPEC producers increased output as projected by EIA in the second half of the year. However, if OPEC members do not raise production in line with estimates used in the STEO, EIA would expect more upward price pressure than is currently in EIA’s projected price path.

The latest STEO projections and other recent analyses have highlighted the need for higher production. How OPEC producers answer the call will influence global oil markets and prices over the second half of the year.

Gasoline and Diesel Prices Increase
For the first time since May 21, the U.S. average retail price for regular gasoline rose, increasing 2.2 cents to 298.1 cents per gallon as of July 9, 2007. Prices are 0.8 cent per gallon higher than this time last year. Regional prices were mixed with East Coast prices dropping 0.1 cent to 292.4 cents per gallon. The largest rise was in the Midwest, where prices jumped 9.1 cents to 304.5 cents per gallon. Prices for the Gulf Coast increased 0.7 cent to 285.8 cents per gallon. In the Rocky Mountain region, prices fell 3.1 cents to 306.6 cents per gallon, although they remain 17.9 cents per gallon above last year. West Coast prices were down 2.6 cents to 308.0 cents per gallon. The average price for regular grade in California was lower by 2.1 cents to 313.6 cents per gallon.

Retail diesel prices continued to fluctuate, rising to 284.9 cents per gallon, 2.0 cents more than last week. Prices are 6.9 cents per gallon lower than at this time last year. All regions tallied price increases. East Coast prices climbed 2.6 cents to 285.3 cents per gallon. In the Midwest, prices were higher by 1.7 cents to 282.2 cents per gallon, while the Gulf Coast saw a rise of 1.9 cents to 278.5 cents per gallon. The Rocky Mountain region gained 1.9 cents, settling at 295.5 cents per gallon. The West Coast price strengthened 1.5 cents to 298.7 cents per gallon, 7.3 cents per gallon lower than at this time last year. California prices also rose, by 2.3 cents, to 309.0 cents per gallon.

Propane Inventories Report Strong Weekly Gain
The weekly gain in propane inventories was particularly strong last week, due in part from strong imports that boosted the Nation’s primary supply of this fuel up to an estimated 46.3 million barrels as of July 6, 2007. Most of the overall gain in imports were concentrated in the East Coast where inventories posted a weekly increase of 0.5 million barrels, followed with strong gains in the Midwest and Gulf Coast regions that reported respective gains totaling 0.9 million barrels and 0.8 million barrels. The combined Rocky Mountain/West Coast region climbed by 0.2 million barrels during this same period. Propylene non-fuel use inventories rose by 0.2 million barrels last week to account for a slightly higher 5.8 percent share of total propane/propylene inventories, up from the prior week’s 5.6 percent share.

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