Released: March 9, 2011
Next Release: March 16, 2011

EIA Raises Crude Oil and Gasoline Price Forecasts

Crude oil prices during the month of February rose with the spread of political unrest in North Africa, including violent uprisings in Libya that have led to the shutdown of much of its oil production. The spot prices for West Texas Intermediate (WTI), a midcontinent crude oil benchmark, increased $15.52 (17 percent) from February 1 to March 8. During the same time period, Brent, a similar North Sea oil grade, rose $11.92 (12 percent). Increasing uncertainty about oil supply, not just from Libya but other countries in North Africa and the Middle East, as well, have quickly pushed oil prices to levels not seen since 2008.

EIA's latest Short-Term Energy Outlook, released yesterday, reflects this sudden and dramatic increase in crude oil prices. EIA's forecast of the 2011 average WTI crude oil spot price increased from $93 per barrel in last month's Outlook to almost $102 per barrel in the latest forecast. Because of the expected continuation of the large price discount for WTI relative to other world crudes (see This Week in Petroleum, Feb. 24, 2011), the increase in the forecast 2011 average cost of crude oil to U.S. refiners from last month's Outlook is larger, from $91 per barrel to $105 per barrel.

Retail gasoline prices surged by 38 cents per gallon in just the last three weeks to $3.52 per gallon. Because the pass-through of changes in wholesale gasoline prices to the retail level is lagged, pump prices would be expected to rise a further 10 cents per gallon to fully reflect the current wholesale price level even without considering any future wholesale price movements.

EIA expects regular-grade retail gasoline prices to average $3.71 per gallon during this year's summer peak driving season (June through August), 48 cents per gallon higher than forecast in last month's Outlook and 98 cents per gallon higher than last year (Figure 1). There is significant uncertainty surrounding the forecast, with current market prices of futures and options contracts for wholesale gasoline, considered in conjunction with the typical spread between wholesale and national average retail gasoline prices, suggesting about a 25-percent probability that the national monthly average retail price of regular gasoline could exceed $4.00 per gallon in the June through August 2011 period. On the other hand, there is a 10-percent probability that the national monthly average retail price over this period could fall below $3.00 per gallon. EIA further discusses price uncertainty in the Energy Price Volatility and Forecast Uncertainty supplement to the Outlook.

The projected increase in gasoline prices suggests that vehicle fueling costs for the average U.S. household will be about $700 higher in 2011 than they were in 2010. According to the 2009 National Household Travel Survey ( Transportation Energy Data Book, Tables 4.1 and 8.6), U.S. households drove an average 20,251 miles with an average vehicle fuel efficiency of 22.6 miles per gallon. Assuming no change in travel or average fuel economy, the increase in the average annual gasoline retail price (all grades) from $2.40 per gallon in 2009 to $2.83 per gallon in 2010 and a projected $3.61 per gallon in 2011 implies an increase in average annual household expenditures on gasoline from $2,150 in 2009 to $2,535 in 2010 and $3,235 in 2011.

Retail gasoline and diesel prices rise sharply
The U.S. average retail price of regular gasoline continued its march upward, gaining 14 cents versus last week. At $3.52 per gallon, gasoline is now $0.77 per gallon higher than last year at this time. Combined with last week's 19-cent increase, the gasoline price is up 33 cents over the last two weeks. This is the third largest two-week increase since EIA began tracking weekly retail gasoline prices in 1990. Prices on the Gulf Coast soared more than 15 cents, the biggest increase in the country. Both the East Coast and West Coast averages jumped more than 14 cents on the week. The Midwest experienced a 12-cent increase. The smallest increase was in the Rocky Mountains where the price rose about 12 cents to keep the gasoline average in that region the lowest in the country at $3.30 per gallon. The most expensive gasoline among the major regions is on the West Coast, where the average retail price is $3.77 per gallon.

Diesel prices rose for the fourteenth consecutive week with the U.S. average retail price adding more than 15 cents to last week's price. This is the longest streak of consecutive weekly increases since 1999. At $3.87 per gallon, diesel is $0.97 per gallon higher than last year at this time. Diesel prices were up across the country; the biggest increase occurred in the Midwest, where prices jumped over 16 cents. Diesel prices on the Gulf Coast and West Coast increased more than 15 cents. The Rocky Mountain price registered a gain of almost 15 cents while the East Coast strengthened more than 14 cents. The West Coast diesel price averaged $4.05 per gallon, the first time any region has eclipsed $4.00 per gallon since September 2008. Diesel is also averaging more than $4.00 per gallon in the New England and Central Atlantic sub-regions.

Residential heating fuels prices increase
Residential heating oil prices continued to rise during the period ending March 7, 2011. The average residential heating oil price increased to $3.87 per gallon, nearly $0.12 per gallon over last week and $0.95 per gallon more than last year at this time. Wholesale heating oil prices increased by less than $0.16 per gallon last week, reaching a price shy of $3.21 per gallon. This is almost $1.02 per gallon higher than last year's price.

The average residential propane price increased by $0.02 per gallon to reach a price of $2.88 per gallon. This was an increase of $0.23 per gallon compared to the almost $2.65 per gallon average from the same period last year. Wholesale propane prices dropped by $0.23 with the overall price at nearly $1.46 per gallon. This was an increase of almost $0.15 per gallon compared to the March 8, 2010 price of $1.31 per gallon.

Propane inventories drop again
Total U.S. propane inventories continued to decline last week, falling by 1.4 million barrels to end at 27.1 million barrels total. The East Coast region led the decline with a draw of 0.8 million barrels of propane. The Midwest regional stocks fell by 0.5 million barrels and the Gulf Coast region drew 0.1 million barrels. The Rocky Mountain/West Coast inventories were down slightly. Propylene non-fuel use inventories represented 9.3 percent of total propane inventories.

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