Unlike in recent years, growth in global gasoline consumption is outpacing diesel growth in 2014. At the same time, new refining capacity engineered to produce more distillate than gasoline is coming online in 2014. The narrowing spread for December 2014 futures contracts demonstrates how these two factors may be temporarily leading to a tighter global gasoline market than was expected at the beginning of the year.

On July 8, the futures price premium of New York Harbor ultra-low-sulfur diesel (heating oil) over reformulated blendstock for oxygenate blending (RBOB) for December 2014 delivery fell to 22 cents per gallon (gal) on the New York Mercantile Exchange (Nymex) (Figure 1). This was the lowest spread for December contracts since 2010.

Global growth in use of gasoline outpaces diesel in 2014

The decline in December contract differentials this year is a result of both the weakening of heating oil prices and the strengthening of gasoline prices. The December 2014 heating oil-Brent crack spread averaged 42 cents/gal in January and fell to an average in July of 35 cents/gal on July 29. In contrast, the December RBOB-Brent crack spread widened from an average of 5 cents/gal in January to an average of 9 cents/gal so far in July.

Gasoline and diesel fuel prices down for fourth consecutive week
The U.S. average retail price of regular gasoline decreased 5 cents this week to $3.54 per gallon as of July 28, 2014, 11 cents per gallon lower than last year at the same time. The national average price has fallen for four consecutive weeks, and is now the lowest since early March. Prices declined in all areas of the country except the Rocky Mountains, where the average increased half a cent to $3.65 per gallon. The Midwest price declined the most, nine cents, to $3.41 per gallon. The East Coast and Gulf Coast prices each declined five cents, to $3.54 per gallon and $3.35 per gallon, respectively. The West Coast price decreased four cents to $3.92 per gallon.

The national average diesel fuel price decreased a cent this week to $3.86 per gallon, six cents less than the same time last year, and the lowest since November 2013. Prices dropped in all regions, with the East Coast experiencing the largest decline, two cents, to $3.91 per gallon. The Midwest, Gulf Coast, and West Coast each fell one cent, to $3.80 per gallon, $3.77 per gallon, and $4.02 per gallon, respectively. The Rocky Mountain price decreased less than a penny to remain at $3.89 per gallon for a second week.

Propane inventories continue to rise
U.S. propane stocks increased by 1.8 million barrels last week to 67.2 million barrels as of July 25, 2014, 5.9 million barrels (9.6%) higher than a year ago. Midwest inventories increased by 0.8 million barrels while Gulf Coast and East Coast inventories each increased by 0.4 millionbarrels. Rocky Mountain/ West Coast inventories increased by 0.1 million barrels. Propylene non-fuel-use inventories represented 6.1% of total propane inventories.