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The weekly petroleum data summary from the Energy Department for the week ending May 18, 2007, contained what could be the 1-2 punch punch that knocks gas prices back where they belong:gasoline inventories increased by 1.5 million barrels and refinery activity topped 91% including an increase in gasoline production. Gasoline use was still up 1.2% above last year for the preceding 4-week average, but crude inventories were also strong and total petroleum inventories rose by 6.4 million barrrels - relieving pressure to divert refinery activity away from gasoline.

Demand for all petroleum products was up, with total products supplied up 2.2%, distillate fuel use up 2.6% and jet fuel barely down at a 0.1% drop, compared to last year. Crude oil imports were up and refinery inputs increased by 351,000 barrels per day.

The sports fan that usually writes This Week in Petroleum must be on vacation (leaving me free to make the 1-2 punch reference above) because this week they're drawing oil market analogies from Shakespeare. In an attempt to justify downplaying the significance of the Lundberg survey reporting that gasoline prices reached an all time inflation adjusted high, they quote from Romeo and Juliet:

What's in a name? that which we call a rose
By any other name would smell as sweet;

Call it rose or call it crude, Shakespeare doesn't justify their quibbling over a few inflation adjusted cents - gasoline prices are either just above or just below their all time high in inflation adjusted terms and are at their all time high in absolute terms. And is it really wise to quote from a tragedy?

gas,gasoline,price,prices,oil,crude oil

This Week in Petroleum: May 23, 2007

What's In a Name?
In Romeo and Juliet, William Shakespeare wrote the following passage:
What's in a name? that which we call a rose
By any other name would smell as sweet;

Even those of us who have not spent a lifetime studying Shakespeare know that this passage reminds us that what is important is not the name of something, but what it actually is. Although retail gasoline prices are anything but “sweet”, this passage is relevant when talking about them. Much has been made as to whether or not current prices are at an all-time record, even after adjusting for inflation. Based on various historical prices and which parameter is used to adjust for inflation, different answers can be given as to exactly what is the all-time record real price. But whether retail prices are at an all-time inflation-adjusted high or not is less important than the notion that prices are very high for the United States. Whether they are at a record level, or just shy, of one doesn’t change the price of a gallon of gasoline by even one cent.

While everyone agrees that the real price record was set in March 1981, the actual level finds less agreement, as the inflation adjustment process can lead to different outcomes. The Lundberg survey released on May 20 reported that the record inflation-adjusted price was $3.15 per gallon, a level which their survey now exceeds. EIA previously had indicated that in real prices, the March 1981 average was $3.223 per gallon, but this was in 2006 dollars, not in today’s dollars. Recalculating in terms of May 2007 dollars, the monthly average price for regular gasoline in March 1981, using the price collected by the Bureau of Labor Statistics for March 1981 and adjusting for inflation by using the Consumer Price Index, is $3.292 per gallon (see this spreadsheet for the calculation). On this basis, the national average price for regular gasoline just published by EIA of $3.218 per gallon still lies below the real price peak.

However, there are other issues that need to be addressed when a price at a given point in time is compared to a monthly average from more than 26 years ago. Even if a new record is set in the weeks ahead, prices are just one way of comparing the cost of gasoline from one era to another. Another statistic would be to look at the cost of gasoline per mile, and adjusting this for inflation. EIA shows this data in the spreadsheet linked above going back to 1981, when the average fuel efficiency (miles per gallon) was much lower, thus making the cost per mile significantly higher when compared to now. Still another way to compare the cost of gasoline is to compare gasoline expenditures for the economy as a whole as a percentage of Gross Domestic Product (GDP). Using this measurement, gasoline expenditures, even at today’s high prices, represent less than 3.0 percent of GDP, compared to 4.6 percent in 1980 and 1981.

Thus, while the setting of record prices may be immaterial for many drivers, prices are high and are expected to remain high throughout the entire summer, they are not yet at levels which imply the same impact on U.S. households or the economy in general as the level seen in March 1981. Arguing over whether a particular record has been set does not change that fact.

Gasoline Hits New Nominal Record High
For the fourth consecutive week, gasoline prices were up, increasing 11.5 cents to 321.8 cents per gallon as of May 21, 2007. Prices are 32.6 cents per gallon higher than this time last year and have now reached an all-time nominal high for the second week in a row. All regions, except for the West Coast, reported price increases. East Coast prices were up 11.6 cents to 309.7 cents per gallon. In the Midwest, prices jumped 15.4 cents to 332.6 cents per gallon, while prices for the Gulf Coast rose 17.7 cents to 309.2 cents per gallon. The Rocky Mountains saw prices increase 7.2 cents to 326.5 cents per gallon. West Coast prices were down 0.6 cent to 337.2 cents per gallon. The average price for regular grade in California was down 1.4 cents to 343.6 cents per gallon, but remains 11.3 cents per gallon above last year's price.

Retail diesel prices rose last week, breaking a string of four consecutive weeks in which they declined, increasing 3.0 cents to 280.3 cents per gallon. Prices are 8.5 cents per gallon lower than at this time last year. East Coast prices rose 4.0 cents to 279.8 cents per gallon. In the Midwest, prices were up 3.3 cents to 277.3 cents per gallon, while the Gulf Coast saw an increase of 3.4 cents to 274.7 cents per gallon. The only region to see a decrease in price was the Rocky Mountains, where prices were down 0.5 cent to 299.3 cents per gallon. Prices on the West Coast saw an increase of 0.2 cent to 292.1 cents per gallon, while California prices rose 0.3 cent to 295.5 cents per gallon, 27.9 cents per gallon lower than at this time last year.

Propane Posts Moderate Weekly Gain
Propane stockholders continued boosting inventories higher last week but at a relatively moderate 1.4 million barrels, leaving inventories as of May 18, 2007 at an estimated 32.9 million barrels. The rather lackluster build so far this year has contributed to propane inventories tracking slightly below the lower limit of the average range for this time of year. While inventories in the East Coast inched lower last week by 0.1 million barrels, gains were registered in the other major regions that included 1.2 million barrels in the Midwest and 0.2 million barrels in the Gulf Coast. The combined Rocky Mountain/West Coast region posted a 0.2 million-barrel gain during this same time. Propylene non-fuel use inventories turned higher last week and accounted for a slightly larger 7.6 percent of total propane/propylene inventories from the prior week’s 7.2 percent share.

Summary of Weekly Petroleum Data for the Week Ending May 18, 2007

U.S. crude oil refinery inputs averaged nearly 15.7 million barrels per day
during the week ending May 18, up 351,000 barrels per day from the previous
week's average. Refineries operated at 91.1 percent of their operable capacity
last week. Gasoline production increased compared to the previous week,
averaging 9.2 million barrels per day, while distillate fuel production
increased slightly, averaging nearly 4.2 million barrels per day.

U.S. crude oil imports averaged nearly 10.9 million barrels per day last week,
up 560,000 barrels per day from the previous week. Over the last four weeks,
crude oil imports have averaged over 10.6 million barrels per day, or 563,000
barrels per day more than averaged over the same four-week period last year.
Total motor gasoline imports (including both finished gasoline and gasoline
blending components) last week averaged 1.3 million barrels per day. Distillate
fuel imports averaged 190,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) rose by 2.0 million barrels compared to the previous week.
At 344.2 million barrels, U.S. crude oil inventories are just above the upper
end of the average range for this time of year. Total motor gasoline
inventories climbed by 1.5 million barrels last week, but remain well below the
lower end of the average range. Distillate fuel inventories increased by 0.5
million barrels per day, and are just below the upper end of the average range
for this time of year. Heating oil (high-sulfur) and regular diesel fuel
(low-sulfur) inventories both declined slightly last week, but were more than
compensated by an increase in ultra-low-sulfur diesel fuel inventories.
Propane/propylene inventories rose by 1.4 million barrels last week. Total
commercial petroleum inventories jumped by 6.4 million barrels last week, and
are in the middle of the average range for this time of year.

Total products supplied over the last four-week period has averaged 20.8 million
barrels per day, or 2.2 percent above the same period last year. Over the last
four weeks, motor gasoline demand has averaged nearly 9.4 million barrels per
day, or 1.2 percent above the same period last year. Distillate fuel demand has
averaged nearly 4.2 million barrels per day over the last four weeks, up 2.6
percent compared to the same period last year. Jet fuel demand is down 0.1
percent over the last four weeks compared to the same four-week period last
year.

Complete current report with data tables [PDF file in popup window]