As refiners were preparing for the summer gasoline season during spring of this year, retail gasoline and diesel prices stood at virtual parity, with only a penny separating their respective average monthly prices at the pump during April 2007. At that time, "This Week In Petroleum" (TWIP) (see April 25, 2007 edition of TWIP) discussed the possible relationship between gasoline and diesel prices during the 2007 summer driving season. The typical pattern in recent years prior to 2005 had been for gasoline prices to rise above diesel prices during the spring and summer months. However, in 2005, just the opposite relationship occurred through spring and much of summer, reflecting diesel fuel's emergence as the fastest growing petroleum product, especially in Asia and Europe. The premium for diesel during the summer of 2005 eventually dissipated, but only as Hurricanes Katrina and Rita wreaked massive damage and extensive disruption to U.S. Gulf Coast operations in August and September. Then, during most of the summer of 2006, diesel and gasoline prices were near parity, presenting a relationship falling between the 2005 experience and the typical pattern of earlier years. With gasoline and diesel prices once again at parity during the spring of 2007, and price patterns of recent summers providing very mixed signals, one question facing oil markets was which way the relationship between prices would turn during the summer of 2007.
As the figure below shows, gasoline was at a premium to diesel for most of the 2007 summer driving season, maintaining about a 23 cent-per-gallon average premium over May through July. This past summer's gasoline price premium was attributable to some of the factors mentioned in the April edition of TWIP; notably, strong summer gasoline demand, longer-than-expected delays in refinery maintenance programs, and lower imports. These factors combined to exert added pressure on an already tight U.S. gasoline market that relied more heavily than normal on product withdrawals. The resulting sharp drop in gasoline inventories over this period further contributed to market anxieties over the adequacy of gasoline supplies as reflected in very high gasoline prices and margins.
What lies ahead for retail gasoline prices during the immediate post-summer driving season? With the Labor Day weekend behind us, along with peak summer gasoline demand, retail gasoline prices would be expected to soften, as refiners begin their fall maintenance programs in preparation for ramping up production of heating oil for the winter heating season. Although retail gasoline prices did fall about 47 cents per gallon between the Memorial Day peak and Labor Day, gasoline prices have recently fluctuated between 274.9 and 281.8 cents per gallon over the past three weeks. Atlantic hurricanes are sometimes a major factor contributing to any late season surge in prices, but this has not been the case so far this year. Rather, continued erosion in gasoline inventories over the past few weeks, with stocks reaching an all-time low in terms of days of supply, coupled with sporadic refinery problems in some parts of the country, and low imports, have been key factors in the marketplace this year. Pressure from these sources has been particularly acute in the Midwest where gasoline prices were the highest in the Nation over the latter part of August to mid-September. These developments may be signaling that continued vulnerability to upward pressure on gasoline prices may persist for a while, at least longer than normal for this time of year. Once again, gasoline markets may be at crossroads leading to somewhat atypical price paths over the next month or so.
Retail Gasoline Prices Drop While Diesel Increases The U.S. average retail price for regular gasoline decreased 3.1 cents last week to