Average US gas prices are heading into the Labour Day weekend are at their highest since 2014 and 43 cents/gallon higher than this time last year.
Average US gas prices hit $2.83/gallon on Aug. 27
This article was published by the US Energy Information Administration on August 29, 2018.
The US average retail price for regular gasoline on August 27, 2018, was $2.83 per gallon (gal), the highest price on the Monday before Labour Day since 2014, when it was $3.45/gal, and 43 cents/gal higher than the same time last year (Figure 1).
A higher North Sea Brent crude oil price—nearly $23 per barrel (b) higher than what it was heading into the Labour Day weekend last year and its highest level for this time of year since 2014—is the main driver of the increase in the gasoline price.
Crude oil is the main input cost in the production of gasoline, and movements in the crude oil price— along with changes in gasoline market conditions—drive changes in wholesale and retail gasoline prices.
The US Energy Information Administration (EIA) estimates that about two-thirds of the price of gasoline at the pump is attributable to the refinery acquisition cost of crude oil.
Because a barrel of oil contains 42 gallons, each dollar per barrel of sustained price change in crude oil and gasoline wholesale margins translates to an average change of about 2.4 cents/gal in petroleum product prices.
When the price of crude oil increases, the price of wholesale gasoline adjusts to reflect the increased refinery input cost, other market factors being equal.
As of August 27, the Brent crude oil spot price, which is more important than the West Texas Intermediate(WTI) spot price as a determinant of U.S. gasoline prices, was $74/b, nearly $23/b higher than the price at the same time last year and $2/b higher than the five-year (2013-17) average for the same day.
The higher crude oil price environment has coincided with a period of strong motor gasoline demand, which also puts upward pressure on prices.
US Federal Highway Administration data indicate that the cumulative miles driven in the United States through the first half of 2018 increased by 5.2 billion miles (0.3 per cent) from the same time period in 2017.
EIA’s product supplied data for motor gasoline, which reflect the volume delivered out of the primary supply chain and is a proxy for consumption, reflect a similar slight increase in US demand for gasoline.
Gasoline product supplied in the first five months of 2018 averaged 9.2 million barrels per day, an increase of 0.2 per cent compared with the same period last year.
Although the year-over-year rate of increase was greater in the lower price environment of 2015 and 2016, US gasoline product supplied reached a record high in 2017, and recent product supplied volumes remain high compared with levels in previous years at this time.
Retail gasoline prices vary significantly within the United States as a result of regional supply and demand balances, gasoline specification requirements, and taxes (Figure 2).
The US Gulf Coast, Petroleum Administration for Defense District (PADD) 3, typically has the lowest retail gasoline prices in the country because it has approximately 50 per cent of US refining capacity and produces more gasoline than it consumes.
Through August 27, average Gulf Coast gasoline prices were 26 cents/gal lower than the national average, while West Coast (PADD 5) prices are 48 cents/gal higher.
West Coast retail gasoline prices are typically higher than the average US price because of the region’s tight supply and demand balance, geographical isolation from other U.S. refining centres—such as the Gulf Coast—due to very limited gasoline transportation infrastructure, and gasoline specifications that are more costly to manufacture.
Since January 8, 2018, weekly West Coast regional gasoline prices have consistently exceeded $3.00/gal. Although state-level gasoline taxes and fees in California and Washington each approach 50 cents/gal, state-level gasoline taxes and fees across PADD 5 average 29 cents/gal, which is less than a cent higher than the national average.
US regular gasoline prices averaged $2.85/gal from April through August. Over the entire 2018 summer season (April through September), EIA expects the price to average $2.84/gal, 43 cents higher than last summer.
Gasoline prices are often higher in summer months when gasoline demand is higher and when federal and state environmental regulations require the use of summer-grade gasoline, which is more expensive to manufacture.
EIA expects that the monthly average price of U.S. regular gasoline in 2018 peaked in May at $2.90/gal and anticipates prices to remain relatively flat in the fourth quarter of this year. EIA forecasts that U.S. regular gasoline prices will average $2.76/gal in 2018 and 2019 (Figure 3).
US average regular gasoline and diesel prices increase
The US average regular gasoline retail price increased nearly 1 cent from last week to $2.83 per gallon on August 27, 2018, up 43 cents from the same time last year.
Rocky Mountain and Midwest prices each rose three cents to $2.99 per gallon and $2.76 per gallon, respectively, and West Coast and Gulf Coast prices each increased less than a cent, remaining virtually unchanged at $3.31 per gallon and $2.57 per gallon, respectively. East Coast prices fell over one cent to $2.76 per gallon.
The US average diesel fuel price increased nearly 2 cents from last week to $3.23 per gallon on August 27, 2018, 62 cents higher than a year ago.
Midwest and Gulf Coast prices each increased over two cents to $3.15 per gallon and $3.00 per gallon, respectively, Rocky Mountain prices rose nearly two cents to $3.36 per gallon, and West Coast and East Coast prices each increased over a cent to $3.72 per gallon and $3.22 per gallon, respectively.
Propane/propylene inventories rise
US propane/propylene stocks increased by 2.6 million barrels last week to 71.4 million barrels as of August 24, 2018, 9.0 million barrels (11.2 per cent) lower than the five-year (2013-2017) average inventory level for this same time of year.
Gulf Coast and East Coast inventories increased by 1.4 million barrels and 0.7 million barrels, respectively, and Midwest and Rocky Mountain/West Coast inventories each increased by 0.2 million barrels. Propylene non-fuel-use inventories represented 4.4 per cent of total propane/propylene inventories.
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