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This Week in Petroleum: Be Careful When Making Assumptions

August 2007
 Filed under: FUEL AND ECONOMY Car News | FUEL AND ECONOMY Headlines
August 15, 2007 -- Reporters have contacted EIA recently wondering why retail gasoline prices are falling in August. They assume that August is a month in which prices generally increase, and in past editions of This Week In Petroleum, we have mentioned the possibility that retail prices could rise this month, especially if weather disrupts refinery operations. So, how often do retail prices rise during the month of August?

While retail prices do sometimes rise in August, it is anything but a certainty. Since the beginning of this decade, retail gasoline prices generally rose in August in 2001, 2003, and 2005; remained relatively flat in 2000, 2002, and 2004; and declined in 2006 and so far in 2007. Obviously, there is not a dominant pattern for retail gasoline price movements in August, at least not in recent years.
So, what factors influence retail prices during August? Certainly weather plays a big role, from hurricanes affecting crude oil supplies and refinery operations, strong thunderstorms cutting power at refineries, as well as heat and other weather variables causing blackouts. These supply-side factors can lead to higher prices in August. Increased demand as people try to squeeze in one more vacation before school starts is another factor. But the price environment earlier in the summer can also have an impact. If prices rose substantially earlier in the summer, as was the case last year and again this year, those high prices encourage extra supply through increased imports and/or domestic production (from refiners and blenders). This increase in supply, if sustained, drives prices down, as long as late-season demand does not rise enough to offset the extra supply. This phenomenon happened last year and appears to be happening again this year, as reflected in gasoline inventories generally building relative to normal patterns in July, and so far in August. While we may intuitively feel that retail gasoline prices normally increase during August, along with rising demand, recent data suggest that this may not be an accurate assumption to make, as supply may also rise by more than enough to satisfy the higher demand levels.

Retail Gasoline, Diesel Prices Drop More Than a Nickel
The U.S. average retail price for regular gasoline dropped 6.7 cents last week to 277.1 cents per gallon as of August 13, 2007, 22.9 cents lower than last year. Gas prices fell for the fourth week in a row, reaching the lowest national average price since April 2, 2007. All regions recorded price declines. East Coast prices fell 7.0 cents to 275.1 cents per gallon. Midwest region prices decreased 5.9 cents to 276.9 cents per gallon. Prices for the Gulf Coast were 6.7 cents less, settling at 268.1 cents per gallon, the lowest regional average in the country. In the Rocky Mountain region, prices were 288.0 cents per gallon, down 6.5 cents and the highest regional average in the Nation. West Coast prices dropped 7.6 cents to 287.9 cents per gallon. The average price for regular grade in California was 8.8 cents lower at 292.8 cents per gallon.

Continuing the fluctuating trend in recent weeks, retail diesel prices were down 5.1 cents per gallon last week, reaching 284.7 cents per gallon. Diesel prices are 21.8 cents per gallon lower than at this time last year. All regional prices fell, with East Coast prices dropping by 4.6 cents to 282.0 cents per gallon. In the Midwest, prices fell 5.2 cents to 283.5 cents per gallon, while the Gulf Coast decreased 5.3 cents to 277.1 cents per gallon. The Rocky Mountain region declined 3.2 cents, to settle at 298.0 cents per gallon. The West Coast average price dropped by 5.8 cents, but remained the highest priced region in the Nation at 301.9 cents per gallon. California prices fell by 8.6 cents, to 305.4 cents per gallon, 16.6 cents per gallon lower than at this time last year.

Propane Inventories Partially Rebound
Following on the heels of one of the weakest builds of the season, propane stockholders partially rebounded last week by adding 1.4 million barrels to inventories, leaving the nation’s primary supply of propane at an estimated 51.7 million barrels as of August 10, 2007. Although propane imports increased slightly last week, the overall trend of sharply lower imports continued to dampen the stockbuild so far this year. Regional gains were reported in the Midwest and Gulf Coast areas last week that showed inventories rising by 0.3 million barrels and 1.1 million barrels, respectively. During this same time, East Coast inventories fell by 0.1 million barrels while the combined Rocky Mountain/West Coast region remained relatively unchanged. Propylene non-fuel inventories were relatively unchanged last week and accounted for 5.7 percent of total propane/propylene inventories, down from the prior weeks 5.9 percent share.

Source: Dept. of Energy

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