Although summertime retail motor gasoline prices could average somewhat below last year's record-high average of $1.53 per gallon of regular * (nominal dollars), motorists should still be prepared for prices to peak between $1.50 and $1.60 per gallon by the end of the year (see figure).

Like last year, this summer driving season (April through September) is likely to be marked by a tight supply/demand balance. The gasoline market is thus vulnerable to price shocks from unexpected supply problems.

Prices

The expected average summer price of $1.49 per gallon for regular-grade gasoline is the second-highest summer price in nominal terms, and the third-highest in real terms, since 1981. Although current world crude oil prices are lower than those of a year ago, tight world oil markets and a planned output reduction by members of the Organization of Petroleum Exporting Countries suggests that oil prices are unlikely to fall much in the near term. At the same time, however, it is also true that world petroleum supply and demand patterns for the next year or two are marked by uncertainties, which suggests a range of credible price paths for motor gasoline. The figure shows a base-case projection and two outlier plots marking the 95-percent probability range for average prices through the forecast period.

Inventories

Last year's mismatch between motor gasoline demand and supply was due in part to unusually low spring inventories. At about 200 million barrels, gasoline stocks are 4 percent lower this year than last, and 8 percent below the midpoint of the normal range. Low stocks and rising demand create a market that is quite sensitive to supply problems, such as those created in 2000 by pipeline constraints. Low stocks appear to be particularly problematic this year in the east coast, Gulf coast, and midwestern areas. Similar or related supply problems could trigger significant price fluctuations this summer.

Demand

Gasoline demand and highway travel are expected to grow this summer, although growth rates for both will probably be below the averages for the previous 5 years. High gasoline prices and the slumping economy are expected to restrain demand and travel growth to 1.1 percent and 0.9 percent respectively, compared with last summer. The expected modest growth in summer highway travel in 2001 follows the previous summer's decline, the first in 9 years.

Supply

With expected summer demand up (even if modestly) and inventories low, refiners will be under pressure to raise output. The projection is for an increase in total domestic output of about 1.8 percent (150,000 barrels per day), to an average of 8.44 million barrels per day. The projected refinery utilization rate for this summer is 95.9 percent, up from 95.1 percent in the summer of 2000.

The Midwest

Last summer's gasoline price increases were generally severest in the Midwest. No repeat of that situation is specifically projected, but several factors leave room for uncertainty. Reformulated gasoline prices rose steeply in 2000 because of low stocks, refining outages, pipeline constraints, and refiners' inexperience with new Federal gasoline pollution rules. Refiners are better prepared this year and some rules have been relaxed, but midwestern inventories of both gasoline and reformulated blending stocks are again low. The shutdown of the Blue Island, Illinois refinery last December could also compromise the system's flexibility in meeting market demands.

Summer 2001 Motor Gasoline Outlook; 22 pages, 1 table, 13 figures.
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File last modified: April 26, 2001