Released on July 31, 2002
(Next Release on August 7, 2002)

Dominance
Just as Lance Armstrong has proven his dominance by winning the last four Tour de France cycling events, so too has gasoline demand continued to prove its dominance in U.S. oil markets this year, particularly this summer. While distillate fuel, residual fuel, and jet fuel demand have tracked below year-ago levels for almost all of this year, this can be explained by either one-time factors such as warm weather this winter, lower natural gas prices this year, or in the case of jet fuel, fewer air travelers since September 11. But gasoline demand has remained strong this year, up 1.8 percent compared to year-ago levels. And gasoline demand, which represents about 45 percent of total U.S. oil demand, was a large reason why U.S. oil demand in the second quarter was nearly identical to year-ago levels.

Gasoline demand exhibited 2.3 percent growth over year-ago levels in the first quarter, and appears to have grown by about 2.9 percent in the second quarter. Without this growth, total oil demand in the second quarter would have shown significant negative growth, rather than the essentially flat growth that occurred. Of course, the factors listed above (warm weather, lower natural gas prices, and the effects of September 11) that have negatively affected oil demand in certain products, do not impact gasoline demand much, and in the case of the September 11 attacks, may have positively impacted gasoline demand as consumers may have opted to drive rather than fly for certain trips. Gasoline demand is more sensitive to such factors as economic growth, personal income, and miles traveled, which probably explains most of the growth spurt so far this year. The latest economic data just released by the Bureau of Economic Analysis (BEA) this morning (July 31) show that GDP grew at an annualized rate of 5.0 percent in the first quarter and 1.1 percent in the second quarter, while personal income continued last year’s growth pattern into the first half of this year. This not only explains the strength seen in gasoline demand so far this year, but also why “other oils” demand, which is heavily dependent on economic factors, has also shown positive growth. And with the record level of gasoline imports seen this summer, without this strength in gasoline consumption, gasoline prices would most likely be much lower.

As the one-time factors dissipate, distillate fuel demand, in particular, has shown signs of a recovery in the second quarter of 2002. Distillate fuel demand in the first quarter this year was down versus year-ago levels by nearly 11 percent, due in large part to warmer weather and much lower natural gas prices this year. However, in the second quarter, as the weather impacted demand to a much smaller degree, distillate fuel demand was only 1.0 percent less compared to year-ago levels. Thus, as the economy continues to slowly recover from last year’s recession (which is now officially a recession since the BEA has revised down the first and second quarter of 2001 GDP growth rates so that negative growth was seen in the first three quarters of last year), oil demand should continue to grow. Gasoline demand, though, will continue to be the dominant engine for oil demand growth throughout the year, if history is any guide.

Retail Gasoline and Diesel Fuel Prices Both Fall Last Week
The U.S. average retail price for regular gasoline fell 0.3 cent per gallon last week, ending at 140.7 cents per gallon as of July 29. This price is 2.3 cents per gallon higher than last year, marking the second week in a row this summer that 2002 prices were higher than 2001 prices. Retail gasoline price changes were mixed throughout the country, with the largest increase occurring in New England, where prices rose 1.1 cents per gallon to end at 142.9 cents per gallon. A price increase was also seen in the Rocky Mountain region where prices gained 0.8 cent to end at 146.3 cents per gallon. The largest price decrease occurred in Minnesota, where prices fell 6.0 cents to end at 143.3 cents per gallon. While prices have remained relatively flat this summer, we have seen some upward pressure in the past few weeks. There is still potential for sharper price increases before Labor Day if we see more pressure on crude oil, a sustained drop in gasoline imports, steady or rising gasoline demand, or a decrease in refinery output. Retail diesel fuel prices decreased by 0.8 cent per gallon to a national average of 130.3 cents per gallon as of July 29.