This Week in Petroleum: What Will it Take?

Gasoline Prices and Diesel Prices Continue to Climb

April 11, 2007 -- What will it take for the Chicago Cubs to win the World Series? What will it take for Sanjaya to be voted off American Idol? Unfortunately (or not) we don’t have a clue about the answers to either of these two questions. However, with the U.S. average retail price for regular gasoline now above $2.80 per gallon, some analysts and reporters have a new question on their minds -- : what level of prices would cause Americans to change their driving habits? Recent data suggest that average prices in the neighborhood of $3 per gallon might lead to such adjustments.

The last two times the U.S. average retail price for regular gasoline approached and surpassed $3 per gallon (following Hurricane Katrina in 2005 and most of the summer in 2006), gasoline demand growth (the blue line in the chart below) did slow. Of course, there have been other times that gasoline demand growth has slowed.

The latest weekly data showed demand continuing to grow at a strong clip, with the four weeks ending April 6 averaging 9.363 million barrels per day, or 2.5 percent higher than the same period last year. Demand for the week ending April 6, averaged 9.472 million barrels per day, a record for the month of April, far surpassing the previous weekly record for April (9.338 million barrels per day for the week ending April 9, 2004), while data for the week ending March 30 was also a record for March.

With the sharp increase in ethanol blending over the past year, gasoline demand measured in terms of energy content has not grown as fast as the volumetric measure of demand growth cited above, since ethanol has a lower energy content per unit volume than the fuel components it has displaced. But, even taking account of the change in fuel composition, recent data suggest that gasoline demand, however measured, is quite inelastic, meaning that it takes a large increase in prices to significantly affect demand.

Gasoline Prices and Diesel Prices Continue to Climb

Gasoline prices were up again for the week of April 2, 2007, increasing 9.5 cents to 280.2 cents per gallon. This is the tenth consecutive week of increases; prices are now 11.9 cents per gallon higher than at this time last year. All regions reported higher prices. East Coast prices were up 8.4 cents to 275.5 cents per gallon. The Midwest had the largest regional increase, with prices rising 13.0 cents to 274.4 cents per gallon. Gulf Coast prices were up 11.0 cents to 267.5 cents per gallon, while Rocky Mountain prices increased 10.0 cents to 271.9 cents per gallon. West Coast prices were up 4.2 cents to 313.8 cents per gallon, with the average price for regular grade in California up 2.4 cents to 325.2 cents per gallon, 44.1 cents per gallon above last year's price.

Retail diesel prices also increased this week, rising 5.0 cents to 284.0 cents per gallon. Prices are now 18.6 cents per gallon higher than at this time last year. All regions reported price increases. East Coast prices rose 4.9 cents to 281.3 cents per gallon. In the Midwest, prices were up 5.5 cents to 283.5 cents per gallon, while the Gulf Coast saw an increase of 4.4 cents to 281.0 cents per gallon. The largest increase was in the Rocky Mountains, where prices were up 6.7 cents to 295.1 cents per gallon. Prices on the West Coast saw an increase of 3.6 cents to 292.1 cents per gallon. California prices rose 3.9 cents to 297.8 cents per gallon, 9.7 cents per gallon higher than at this time last year.

Propane Inventories Report First Post Winter Build

Despite unseasonable cold temperatures throughout many portions of the Nation last week, total propane inventories reported their first increase of the traditional build season that occurs during the period from April through September. Last week, total propane inventories reported a weekly build of 0.7 million barrels, moving inventories up to an estimated 25.8 million barrels as of April 6, 2007. Regional gains were reported in all the major propane consuming areas last week. East Coast inventories moved up by a modest 0.1 million barrels, while the Midwest region reported a weekly gain of 0.5 million barrels. During this same time, the Gulf Coast region reported a 0.3-million-barrel increase. The only areas showing inventory declines last week were in the combined Rocky Mountain/West Coast region where inventories fell by 0.1 million barrels. Propylene non-fuel use inventories continued lower last week with a 0.3-million-barrel drop, accounting for a lower 9.3 percent share of total propane/propylene inventories, compared with the prior week’s 10.9 percent share.

Source: US Dept. of Energy
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