Released on August 27, 2008
(Next Release on September 4, 2008)

Gasoline Markets Are In Low Gear
After 16 years of continuous growth, U.S. motor gasoline consumption began declining in late 2007 and is projected to continue to decline at least through the end of 2009. The decline in consumption is the result of slowing economic growth combined with the rapid increase in retail gasoline prices. The graph below shows historical and projected year-to-year changes in monthly consumption, gross domestic product and retail regular grade prices since the beginning of 2007.

*Sources: Projections - August 2008 Short-Term Energy Outlook. Consumption data - Petroleum Supply Monthly/Annual data through May 2008. June and July data are estimates based on the Weekly Petroleum Status Report.

The decline in consumption began in the fourth quarter of 2007. For the first 6 months of 2008, consumption declined by over 130,000 barrels per day, or 1.5 percent from that of the previous year.

Looking to the near-term future, growth in economic activity is projected to be slow. In 2008, real gross domestic product is projected to climb by only 1.7 percent and by an anemic 1.2 percent in 2009. This assumes no additional economic stimulus package -- enactment of such a package could improve chances for more robust economic growth next year. EIA’s most recent Short Term Energy Outlook projects a continued decline in motor gasoline consumption during the remainder of this year and through 2009, albeit at a more moderate pace than that seen during the first half of this year. Motor gasoline consumption during the second half of 2008 is expected to shrink by 100,000 barrels per day, or 1.1 percent, compared to the second half of last year. Motor gasoline markets for this period as well as for 2009 could be even weaker than those currently projected if monthly gasoline data for the summer continues the demand weakness evident in the recently-released June monthly data. In 2009, motor gasoline consumption is projected to decline a further 20,000 barrels per day, or 0.2 percent, from the average consumption for 2008. But that quantity includes ethanol, whose share of the motor gasoline pool is projected to continue to rise. After adjustment for the lower energy content of ethanol, 2009 motor gasoline consumption is projected to decline 0.5 percent for the year.

Gasoline prices, which have receded from their record levels in mid-July are projected to continue to soften, but only gradually. As a result, retail regular grade prices for 2009 are still expected to average $3.82 per gallon, up from the projected 2008 average of $3.65 per gallon. According to preliminary U.S. Department of Transportation data, vehicle miles traveled for the first six months of 2008 were down 2.8 percent from the same period in 2007. For 2008 as a whole, EIA expects the combined effect of the slowdown in economic growth and the impact of high prices to result in a decline in vehicle miles traveled of 2.1 percent for this year. In 2009, highway activity is projected to decline a further 0.5 percent.

A contributing factor to the dampening of motor gasoline consumption is the ongoing shift to smaller vehicles. Although this shift began more than a year ago, it has accelerated in the past several months as pump prices reached record levels. The likelihood of prices remaining historically high adds to the expected continued demand for more fuel-efficient vehicles.

The recent downward trend in motor gasoline consumption also reflects an apparent increase in consumer price sensitivity. Consumer reaction to price changes during the recent era of prices higher than $3 per gallon, however, appears to be much greater than that prior to the price run-up. While the degree of shift is subject to some uncertainty, it appears that prices well over the $3-per-gallon level might have precipitated conservation among a broader segment of the driving public than seen in previous years. Although prices are projected to continue declining throughout the forecast interval, that decline is expected to be insufficient to induce a reversal in recent motor gasoline consumption patterns.

The price decline projected in the Short Term Energy Outlook, coupled with a slow economic recovery, points to continued declines in motor gasoline consumption through the end of 2009. Motor gasoline prices would have to sink much faster and to much lower levels than those projected in the Outlook and/or economic growth would have to be more robust than the current projection before U.S. motor gasoline consumption would likely begin to grow once again.

Gasoline and Diesel Prices Continue Downward Slide
The average retail price for regular gasoline fell once again in all regions of the country. The U.S. average price dropped 5.5 cents to 368.5 cents per gallon, a cumulative seven-week tumble of 42.9 cents from the all-time high of 411.4 cents per gallon reached July 7. The price on the East Coast sank 6.7 cents to 363.4 cents per gallon. Once again, the smallest drop of any region occurred in the Midwest, where the price dipped just 2.1 cents to 368.7 cents per gallon. The price in Gulf Coast remained the lowest of any region, plunging 8 cents to 351.9 cents per gallon. Even so, that price was still 86.7 cents higher than it was a year ago. The price in the Rocky Mountain region slid 5.4 cents to 383.4 cents per gallon. The West Coast price fell for the ninth week in a row, dropping another 7.4 cents to 390.6 cents per gallon. That price has plunged more than 55 cents since its all-time high set on June 23 but is still the highest average regional price in the nation. The average price in California fell another 8.2 cents to 395.5 cents per gallon, dipping below $4 for the first time since May 19.

The average U.S. retail diesel price dropped another 6.2 cents to 414.5 cents per gallon. In each of the past six weeks, prices have fallen in every region, with the U.S. average plunging nearly 62 cents from its all-time high set on July 14. Even with this drop, the U.S. average price remained 128.2 cents per gallon higher than it was a year ago. The average price on the East Coast slid another 6.4 cents to 419.9 cents per gallon. The price in the Midwest remained the lowest at 407.3 cents per gallon, reflecting a drop of 5.7 cents. The average price in the Gulf Coast fell 5.8 cents, to 409.8 cents per gallon. The price in the Rocky Mountains fell more than in any other region, tumbling 9.2 cents to 422.7 cents per gallon. Nonetheless, the Rockies’ cumulative six-week drop of 49.1 cents was the smallest of any region. The West Coast price retreated another 7 cents to 428.6 cents per gallon. In California, the average price fell to 435.9 cents per gallon, a drop of 6.3 cents.

Propane Inventories Continue Strong August Build
Primary stockholders continued to build propane inventories at a relatively strong pace during the third week of August, posting a 1.3 million-barrel gain that moved stocks up to an estimated 52.0 million barrels as of August 22, 2008. Inventory gains were reported in all major regions last week, leading with a 0.8 million-barrel increase in the Gulf Coast, followed with similar gains of 0.2 million barrels in the Midwest and the combined Rocky Mountain/West Coast areas. East Coast inventories rose by 0.1 million barrels during this same period. Propylene non-fuel use inventories moved up by 0.2 million barrels to account for a larger 6.1 percent share of total propane/propylene inventories from the prior week’s 5.8 percent share.

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