Released on July 18, 2007
(Next Release on July 25, 2007)

Will Crude Oil Prices Reach $80?
The price of crude oil has risen considerably since the beginning of the year, with the near-month futures price of light, sweet crude oil traded on the New York Mercantile Exchange (NYMEX) reaching $75 per barrel at one point during trading on Tuesday, July 17, which is only $2 per barrel less than the previous closing day record price of $77.03 per barrel set almost exactly a year ago (July 14, 2006). With the futures price increasing, some people are wondering if crude oil prices will reach $80 per barrel at some point this year. The trick answer to this question, though, is that light, sweet crude oil prices have already reached $80 per barrel, just not for West Texas Intermediate (WTI), which is the light, sweet crude oil traded at the Cushing, OK delivery point for the NYMEX futures contract. Any premium on light, sweet crude oils has implications for retail prices for refined products, such as gasoline and distillate fuel.

As shown in the chart below, other light, sweet crude oils traded globally and here domestically have already reached $80 per barrel or are quickly approaching that price level. Nigerian Bonny Light (Bonny Lt) crude oil spot prices in Europe have been at or above $80 per barrel since July 9, while here in the United States, Louisiana Light Sweet (LLS) reached $80 per barrel late last week. Another widely traded light, sweet crude oil, Brent, was recently trading above $78 per barrel in Europe. At the beginning of this year, Brent was trading at a discount to WTI, Bonny Light was at a very small premium, and LLS (over $2 per barrel) was at a considerable premium to WTI. But given the price of Brent, Bonny Light, and LLS, WTI would be expected to be very close to $80 per barrel, if not above, already. EIA has already discussed the reasons why WTI is now at a considerable discount to all three other crude oils (see the March 21, 2007 edition of TWIP and the May 2, 2007 edition of TWIP). What has been overlooked among many analysts is how the price of crude oil has risen much more than may be initially apparent, and what impact that has had on U.S. retail gasoline and diesel prices.

In analyzing the rise in retail gasoline and diesel prices this summer, much of the analysis has focused on refinery outages, both from maintenance and unplanned events. These refinery outages are a key factor in the rise in retail gasoline and diesel prices. But what has been overlooked by many is the impact high crude oil prices have had, as well. With fuel specifications evolving towards cleaner and cleaner refined products, refiners are looking to purchase more sweet (low sulfur) crude oils, thus putting an increasing premium on these types of crude oils. If not for the primary focus on WTI, this premium would be much more visible, but it exists nonetheless. As a result, a significant portion of the rise in retail gasoline and diesel prices is related to higher crude oil prices, particularly light, sweet crude oils. While the U.S. refining situation will continue to cause retail prices (especially gasoline) to fluctuate up and down, it is crude oil prices that will likely keep retail prices from falling dramatically over the next few weeks, and could lead to further retail price increases as summer progresses. A continued premium for light, sweet crude oil in the fall and upcoming winter, could put upward price pressure for heating oil. Regardless of where crude oil prices head over the remainder of the year, $80 per barrel prices have already occurred, both overseas and domestically.

Sales Volume Revisions
During EIA’s quality assurance process for the preliminary 2006 data that were published in the Petroleum Marketing Monthly, EIA staff identified certain data series that will require significant revision because of expected resubmissions by one or more companies. The series affected are Prime Supplier volumes of total No. 2 diesel fuel and total motor gasoline. Also affected are Refiner volumes of total No. 2 diesel fuel to end users (retail) and Refiner volumes of total motor gasoline at the retail outlet. At this time, caution should be used when comparing 2006 to 2007 data. Final 2006 data will be released in the Petroleum Marketing Annual to be released in late August.

Gasoline Prices Jump Almost 7 Cents
For the second consecutive week, the U.S. average retail price for regular gasoline increased, climbing 6.8 cents to 304.9 cents per gallon as of July 16, 2007. Prices are 6.0 cents per gallon higher than this time last year. All regions recorded price hikes. East Coast prices rose 4.8 cents to 297.2 cents per gallon. The highest regional price in the Nation occurred in the Midwest, where prices jumped 12.7 cents to 317.2 cents per gallon. Prices for the Gulf Coast increased 6.3 cents to 292.1 cents per gallon. In the Rocky Mountain region, prices were 309.3 cents per gallon, up 2.7 cents this week and 20.3 cents per gallon above last year. West Coast prices increased 0.9 cent to 308.9 cents per gallon. The average price for regular grade in California was higher by 2.2 cents to 315.8 cents per gallon.

Retail diesel prices rose to 288.9 cents per gallon, 4.0 cents more than last week. Prices are 3.7 cents per gallon lower than at this time last year. All regions registered price increases. East Coast prices were higher by 2.1 cents to 287.4 cents per gallon. In the Midwest, prices climbed 5.6 cents to 287.8 cents per gallon, while the Gulf Coast saw a rise of 3.6 cents to 282.1 cents per gallon. The Rocky Mountain region gained 2.2 cents, settling at 297.7 cents per gallon. The West Coast price strengthened 4.4 cents to 303.1 cents per gallon, 2.0 cents per gallon lower than at this time last year. California prices also rose, by 5.7 cents, to 314.7 cents per gallon.

Propane Inventories Moderately Higher
Propane stockholders added an additional 1.5 million barrels to the Nation’s primary supply last week that moved propane inventories moderately higher to an estimated 47.8 million barrels as of July 13, 2007. Total propane inventories have remained either near or below the lower boundary of the average range since the end of the heating season in March. Strong imports in the Midwest contributed to the largest weekly regional gain that pushed the region’s inventories up by 0.8 million barrels last week, while the Gulf Coast reported the second largest weekly gain of 0.5 million barrels. East Coast inventories inched higher by 0.1 million barrels last week while the combined Rocky Mountain/West Coast region posted a similar 0.1-million-barrel increase during this same time. Propylene non-fuel use inventories remained relatively unchanged last week, but due to the overall increase in inventories, accounted for a slightly smaller 5.6 percent share of total propane/propylene inventories.

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