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US EIA Expects Summer Gasoline Prices 11% Higher than Last Year

Eiasummer
Projected regional summer gasoline prices.

In its just-released Short-Term Energy Outlook (STEO), the US Energy Information Administration predicts summer gasoline prices in the US will average $2.62 per gallon—$0.25 per gallon higher than last year’s average of $2.37 per gallon. The agency expects summer diesel prices of $2.62 per gallon as well.

The agency also forecasts continued high crude oil prices through the rest of 2006, with a razor-thin buffer between consumption and production.

The EIA attributes the increase in gasoline cost to the following factors:

  • The high price of crude.

  • Ongoing growth in gasoline consumption. After showing almost no growth in 2005, gasoline consumption is projected to grow 1.4% in 2006 and 1.7% in 2007.

  • Tier 2 gasoline requirements mandate further reduction in sulfur content this year. The Tier 2 Vehicle and Gasoline Sulfur Program, begun in January 2004, implements a phased-in reduction of sulfur levels, calculated by a cap and an average across all fuels. In 2006, refiners are now required to meet a 30-ppm average sulfur level with a maximum cap of 80 ppm. Gasoline produced for sale in parts of the Western United States will be allowed to meet a 150-ppm refinery average and a 300-ppm cap through 2006 but will have to meet the 30 ppm average and 80 ppm cap by 2007.

    EPA estimates that the Tier 2 gasoline sulfur program will cost less than 2 cents per gallon for the refining industry to produce low-sulfur gasoline when the program is fully phased in.

  • Phase-out of methyl tertiary butyl ether (MTBE) from the gasoline pool. In 2005, a number of petroleum companies announced their intent to remove methyl tertiary butyl ether (MTBE) from their gasoline in 2006.

    The decision to eliminate MTBE was driven by State bans due to water contamination concerns, continuing liability exposure from adding MTBE to gasoline, and perceived potential for increased liability exposure due to the elimination of the oxygen content requirement for reformulated gasoline (RFG) included in the Energy Policy Act of 2005.

    Planning for new ethanol capacity that will be needed to provide ethanol to make RFG when MTBE is eliminated did not anticipate such a rapid exodus from MTBE blending.

    The phase-out of MTBE is projected to increase slightly the average price of all gasoline. The price impact should be higher during the summer than winter because of the required reduction in gasoline vapor pressure during the summer months. Of greater concern with the MTBE phase-out is the increased potential for localized price spikes arising from unexpected supply disruptions.

Higher diesel fuel prices are expected because of the additional cost of producing ultra-low-sulfur diesel fuel later this year.

The EIA expects that by September 2006, fuel prices will drop below last year’s prices resulting from the crude oil and natural gas production and refinery outages caused by Hurricanes Katrina and Rita in 2005.

The EIA is careful to note that its projections do not factor in hurricanes and tropical storms with a potential to cause significant new outages.

As to the world supply of crude oil:

But, in some ways 2006 is likely to bring an even tighter global petroleum market than 2005, if one sets aside the effects of the two hurricanes on US production last year.

Consumption growth outpaces production growth in 2006 by 0.4 million barrels per day (bbl/d), compared to 0.1 million bbl/d greater consumption growth than production growth in 2005. Also, while the world experienced a global stock build in 2005 of 0.5 million bbl/d, a stock build of just 0.1 million bbl/d is expected in 2006.

...Nevertheless, in 2006 annual world consumption growth is forecast at 1.6 million bbl/d, compared with 1.1 million bbl/d in 2005. This will leave average total world consumption in 2006 (85.2 million barrels per day) about 100,000 bbl/d less than average world production.

A buffer of 100,000 barrels per day in a 85.2-million bbl/d market is practically no buffer at all. Even that thin margin disappears in 2007, according to the EIA.

World consumption growth is projected to increase further to 1.7 million bbl/d in 2007 because of economic growth in developing Asian countries. Chinese consumption growth is projected at about 0.5 million bbl/d per year. Overall, world petroleum demand is forecast to increase by 2.0 percent in 2007, compared to 1.8 percent in 2006. However, greater forecast non-OPEC production growth in 2007 will mean that average total world oil supply will equal average total world oil demand for 2007.

Resources:

Comments

Joseph Willemssen

Mission Accomplished.

Cervus

Only 11%? We should be so lucky.

Starting today I'm riding my scooter to work 2-3 days a week. That will save me up to 30% on gas.

W2

Mike,
Can you do those graphs that compare demand to supply, that you use to did before. I think that they were very informative.

An Engineer

It's a joke: prices on the West Coast to average $2.84/gal? They are already just shy of $3.00 (in LA area), and climbing.

Jesse Jenkins

Engineer, I'm sorry to shatter your worldview, but the West Coast region is actually slightly larger than the LA area (thank God). In fact, some of us live in other states like the states of Oregon and Washington and we even have our own gas prices that are factored into the West Coast average gas price. So look forward to gas prices climbing even higher in LA. The rest of the region will pull down the average to $2.84 with our lower prices. Enjoy...

Joseph Willemssen

The current West Coast average is $2.75.

http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp

LochDhu

Does $2.62 include tax? It's at that price already when you do include tax.

Joseph Willemssen

"Does $2.62 include tax?"

Yep.

"It's at that price already when you do include tax."

It's actually $2.68 this week, up almost a dime from last week.

An Engineer

Well WHOOPEE.

Even at a lowly $2.68/gal I don't see the average keeping nearly as low as $2.84, even if it hurts more in LA than in OR.

BTW, how is the hurricane season looking? Anything like last year could be really painful...

Mike GR

Still cheaper than in Canada, which is still cheaper than Europe and so on..

Adrian Akau

The cushon separating world oil supply and demand wears ever thinner. If anything should go wrong, we can expect to see drastic price increases like last year after Katrina. Hawaii gets it oil from Indonesia but I was paying $3.46/gal at the pump. Now it is at $3.05/gal for regular in Hilo.

It is not so much as if a disaster might occur as how much time do we have before one happens. An increase in ocean temperature means all that pent-up energy must go back into the atmosphere. Climate forecasts are presently not conducive to partying.

We need PHEV's and renewable generated energy as soon as possible to withstand possible disaster. Anyone with a better suggestion?


When I was a child, I used to ride the electric trolly all around Honolulu. Perhaps we need to get back to this type of system in cities but instead of overhead rails, have inductive charging systems (no overhead line contacts) set up at stop lights payable by the second with credit cards.

adrianakau@aol.com

antigravity

the next oil shock is on the way, when bush attacks iran oil will go to 150$ plus and you will all look back at the good old days when oil cost $3 a gallon

Randall Parker

I've never understood supposed projections of growth in demand. Demand and supply will equal because prices will rise and fall to make it so.

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