Released on July 23, 2008
(Next Release on July 30, 2008)

EIA’s Pump Diagrams: Factors Affecting Retail Prices for Gasoline or Diesel Fuel
As prices for transportation fuels continue to rise, interest has increased in EIA’s fuel pump diagrams showing the components of retail gasoline and distillate prices that help to explain the price changes. The fuel pump graphics that are featured on our Gasoline and Diesel Fuel Update Page break the retail price of a gallon of fuel (gasoline or diesel) into four cost components: Crude Oil, Refining, Distribution and Marketing, and Taxes.

The Crude Oil component reflects the cost of crude oil purchased by refiners.  To calculate this component, we divide the cost of crude oil to refiners (using the Composite Refiners Acquisition Cost) by the average retail price of regular gasoline, making sure, of course, that the cost of oil and the price of gasoline are both expressed in terms of the same units. Due to rapid increases in the price of crude oil this year, the Crude Oil component has increased to a relatively large portion of the overall price of a gallon of gasoline or diesel fuel.

Taxes are the second largest component of retail price for gasoline and the third largest for diesel fuel in June 2008. To calculate this component, we divide the average State and Federal taxes (from the Petroleum Marketing Monthly explanatory notes) by the average retail price of gasoline. Taxes vary by state, but on a national average basis, total taxes on diesel are typically higher than those on gasoline. It should be noted that EIA’s tax information does not include all local taxes, State taxes based on gross or net receipts, or applicable sales taxes, so the Tax component may be slightly underestimated.

The Refining component is calculated by dividing the difference between the average spot price of gasoline or diesel fuel and the Composite Refiners Acquisition Cost by the average retail price of gasoline or diesel fuel. The average spot price for gasoline is a weighted national composite of the prices for conventional and reformulated gasoline from the New York Harbor, Gulf Coast, Group 3, Chicago, Los Angeles, San Francisco, and Pacific Northwest spot markets. The average spot price for diesel is also a weighted composite of low sulfur diesel fuels from these same spot markets. We do not attempt to break out profits and costs due to the nature of the calculation. This component is essentially a product “crack spread” (product spot price minus crude oil price), and is an indication of refining operating costs and profits associated with gasoline and diesel production.

The smallest percentage of the fuel dollar goes to the Distribution and Marketing component, which is calculated as the percentage of the average retail gasoline price not reflected in the other three components. Again, we do not break out costs and profits. This component reflects the revenues to the service stations, distributors and marketers. Note that, due to exclusion of many local and some State taxes from EIA’s calculation of the tax component, the Distribution and Marketing component may be slightly overestimated.

It should be noted that the Refining and Distribution and Marketing components can vary widely from month to month, since there is typically a lag between when the spot price changes and when the retail price changes. For example, as prices increase on the spot market, the retail prices often take time to adjust. At this point in the cycle with increased spot prices and lagging retail prices (assuming no corresponding increase in crude oil prices), the Refining component would expand while the Distribution and Marketing component would contract. However, as retail prices begin to catch up with the previous spot price increases, the Distribution and Marketing component would increase while the Refining component would decrease.

EIA updates the fuel pump graphics on a monthly basis, as determined by the availability of the early data estimates for the Composite Refiners Acquisition Cost, the crude oil cost used to calculate the Crude Oil component. The graphics for the previous month are typically published between the 17^th and 19^th of each month.

Diesel Prices Slip from Record Highs
The U.S. average retail price for regular gasoline dropped 4.9 cents to 406.4 cents per gallon this week. This was the second week in a row that the U.S. average price did not increase. Prices were down in all regions except the Rocky Mountains. On the East Coast, the price dropped 2.7 cents to 404.4 cents per gallon. The price dropped the most in the Midwest, going down 8.5 cents to 398.1 cents per gallon, the first time since June 23 the Midwest price slipped below $4.00 per gallon. Decreasing 2.9 cents, the Gulf Coast price remained the lowest of any region at 394.2 cents per gallon. The price in the Rocky Mountain region moved up eight-tenths of a cent to 410.5 cents per gallon. The West Coast price slipped 5.2 cents to 436.3 cents per gallon. The average in California also went down, dropping 6 cents to 446 cents per gallon, still 134.2 cents higher than the price a year ago.

For the first time since June 30, the U.S. average retail diesel price went down. The price slipped 4.6 cents to 471.8 cents per gallon. Prices decreased in all five regions from the record highs set last week. The average price on the East Coast dropped 4.9 cents to 477.3 cents per gallon. The price in the Midwest remained the lowest of any region at 464.9 cents per gallon, a decrease of 4.9 cents. The average price in the Gulf Coast slipped 3.6 cents to 470.1 cents per gallon. The price decline in the Rocky Mountains was the smallest of any region, shrinking just four-tenths of a cent to 471.4 cents per gallon. On the West Coast, the average price decreased the most, dropping 6.4 cents to 484.5 cents per gallon. In California, the average price slipped below $5 for the first time since June 30, falling 6.2 cents to 496.4 cents per gallon.

Propane Inventories Post Weak Build
The summer build in primary inventories of propane continued to struggle last week after posting a lackluster 0.3 million-barrel increase that edged stocks slightly higher to an estimated 45.3 million barrels as of July 18, 2008. With last week’s build, total propane inventories remained below the average range for this time of year. Regional inventories showed mixed results, with inventories dropping in the East Coast and Gulf Coast by 0.2 million barrels and 0.8 million barrels, respectively. Midwest inventories reported a gain last week of 1.2 million barrels, while the combined Rocky Mountain/West Coast region rose by 0.1 million barrels during this same time. Propylene non-fuel use inventories remained relatively unchanged last week, maintaining the same 5.8 percent share of total propane/propylene inventories from the prior week’s 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.