Gasoline prices fluctuate seasonally (see figure), but the last couple of years have seen unusual variations. A sharp increase occurred in spring 1996, driven mainly by an upturn in crude oil prices just as gasoline prices began their normal seasonal rise. A year later, however, crude oil prices fell and pulled gasoline prices down with them. In Assessment of Summer 1997 Motor Gasoline Price Increase, the Energy Information Administration (EIA) explains how the price surge of August 1997 differed from the earlier swings. This time, gasoline market dynamics underlay the changes and crude oil prices were essentially immaterial.
The August increase was unusually large, with prices at the pump rising 7 or more cents per gallon, depending on type. There were several reasons. Demand rose in July to unexpected levels, ending the month higher by 4 percent than in July 1996. Domestic gasoline production and net imports, both strong earlier in the summer, were undermined by softening U.S. prices and declined during July. Refinery problems here and abroad in late July and early August restrained supply increases from production and imports. The imbalance between demand and new supplies caused gasoline stocks to plummet in July and continue to fall in August; they ended the month at the lowest level recorded since 1981. Prices rose in response. New York Harbor spot-market prices peaked at nearly 77 cents per gallon, 20 cents above the prices of late July. Retail prices soon followed, and did not soften until Labor Day signaled the end of the summer driving season.
The report details the fundamental supply and demand forces behind the summer 1997 gasoline price increase. It also closely analyzes gasoline markets on the West Coast, U.S. refinery production capacity last summer, gasoline imports, the interrelationships among gasoline prices at various levels in the distribution system, and the behavior of futures markets.
This is the third EIA report discussing significant changes in gasoline prices since 1996. In contrast to the current report, the previous two reports found that shifts in crude oil prices were a major factor behind fluctuating gasoline prices in spring 1996 and a year later. Readers wishing to compare market conditions during those periods may access all three reports via the EIA website in the Feature Articles and Special Reports section of the Petroleum webpage.
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File last modified: April 30, 1998
URL: http://www.eia.doe.gov/emeu/plugs/plmgas97.html
