Historically, retail gasoline prices in the United States have followed a seasonal pattern. Prices typically rise during the summer driving season and drop after Labor Day. Over the 2004 through 2007 period and in 2009 (2008 is excluded due to the rapid run-up and subsequent crash in crude oil prices over the course of that year), the national average price for a gallon of regular gasoline fell an average of 22 cents between Labor Day and the middle of December. However, 2010 has seen a reversal in this pattern; the national average price has risen by 30 cents per gallon since Labor Day, the largest increase over that period since EIA began publishing weekly retail gasoline price data in 1990. The $2.98 per gallon national average price of regular gasoline is the second highest on record for the third week of December, surpassed only by 2007 when the average price reached $3.00 per gallon.

Rising crude oil prices have been the main driver behind increasing U.S. and global gasoline prices. Crude oil prices have been supported by strengthening global demand for products. Demand growth in 2010 has been broad-based, with strong non-OECD oil demand throughout the year, augmented by a pick-up in OECD consumption, particularly in the United States, as the year progressed. Based on monthly data through September, U.S. gasoline demand increased (year-over-year) for six consecutive months, the longest such stretch since 2007. Weekly data for October, November, and December indicate that trend is continuing.

Strengthening demand combined with a tightening U.S. supply picture (particularly on the East Coast) to further boost price pressures. Gasoline supply in the East Coast market is highly dependent on imports, and events in the weeks following Labor Day complicated the import picture. In October and November, a planned outage at Irving Oil’s St. John refinery in Canada, a major supplier of gasoline to the United States, coupled with port and refinery strikes in France, limited the amount of gasoline available for import. These events, along with routine seasonal maintenance at several key domestic refineries, led to a sharp drop in inventories on the East Coast. In late August, gasoline inventories on the East Coast were in excess of their five-year average by over 11 million barrels; however, by the end of November, that excess inventory had been completely eroded, with inventory levels almost 3 million barrels under the five-year average.

Figure 2 illustrates the tight supply impact on East Coast retail gasoline margins, which rose from $0.82 per gallon on Labor Day to $0.90 per gallon on December 20, rather than follow their more typical seasonal pattern of decline.

Note: Retail Gasoline Margin is the PADD 1 average retail price for regular all formulations gasoline minus the
West Texas Intermediate crude oil (WTI) spot price. WTI spot price shown is from each Monday to correspond
to the weekly retail gasoline price survey.

While gasoline supply constraints have recently eased, crude oil prices have continued to rise. During the past month, the spot price for West Texas Intermediate crude oil has increased almost $8 per barrel (19 cents per gallon) to just under $89 per barrel, as the market has become more confident that strong global oil demand growth will continue into 2011. Since changes in crude oil prices impact gasoline prices in a lagged fashion, gasoline prices may not fully reflect the most recent crude oil price increases, and thus, retail prices may be slow to soften, despite improving supplies.

Source: U.S. Energy Information Administration