On July 13, the U.S. average diesel fuel retail price fell below the average regular gasoline retail price for the first time since the week of August 10, 2009 (Figure 1). From August 2009 through June of this year, retail diesel fuel prices sold at an average premium of 34 cents per gallon (gal) over regular grade gasoline, with the premium reaching more than 90 cents/gal in January.
The persistent price premium for diesel relative to gasoline from August 2009 until last week reflected a combination of factors including strong global demand for diesel, federal fuel taxes for diesel that are 6 cents/gal higher than those for gasoline, and the higher production cost of ultra-low sulfur diesel (ULSD) that was phased in between 2006 and 2010.
Since January, the diesel price premium to gasoline has steadily fallen because the typical seasonal demand pattern, which is strongest for diesel in the winter heating season and strongest for gasoline in summer, has been amplified by especially strong demand for gasoline in the United States and abroad. Furthermore, although retail gasoline prices in most parts of the country have in recent weeks followed crude oil prices lower, elevated retail gasoline prices in California, as a result of ongoing supply disruptions has put upward pressure on the U.S. weekly average gasoline retail price.
Tight diesel markets over the past six years have reflected growing diesel demand from developing economies and the switchover to ULSD for home heating oil in Northeastern states, where over 80% of U.S. use of oil for space heating occurs. Over the same period, gasoline demand has generally been weak, reflecting increasing vehicle fuel economy and changing consumer driving patterns. From 2009 through 2014, total U.S. gasoline consumption (as measured by product supplied) fell by an annual average of 0.2%. This decline in gasoline use compared with average annual diesel fuel demand growth of 5.9% over the same period. The contrasting market conditions for these two fuels are reflected in their comparative refinery wholesale margins (the difference between the wholesale price and the price of Brent crude oil). Over the same 2009-14 period, refinery wholesale margins averaged 38 cents/gal for diesel but only 26 cents /gal for gasoline.
Demand for gasoline in the United States began to rise considerably in the latter part of 2014 and through the first half of 2015 as U.S. retail gasoline prices reached some of their lowest levels in years, reflecting the fall in Brent crude oil prices from an average of $112 per barrel (b) in June 2014 to $48/b in January 2015. Gasoline prices followed crude oil prices, falling from $3.69/gal in June to $2.12/gal in January. Based on the latest data from the Federal Highway Administration, Americans drove a record 987.8 billion miles during the first four months of 2015, topping the previous record of 965.6 billion miles set in the first four months of 2007. Global gasoline demand also increased strongly in the first half of 2015.
Rising gasoline demand has driven refinery wholesale gasoline margins to some of their highest levels in recent years, which in turn boosted gasoline prices despite relative stability in crude oil markets. Refinery wholesale gasoline margins increased to 62 cents/gal in June, 28 cents/gal higher than in June of last year and 25 cents/gal higher than the five-year (2010-14) average for June.
Rough price parity between gasoline and diesel is likely to be a relatively short-term phenomenon, as gasoline demand moderates with the end of the summer driving season and diesel demand begins to grow in response to the fall agricultural harvest and the winter heating season. In the July Short-Term Energy Outlook (STEO), EIA projects that the diesel price premium will return and gradually widen later this year, with gasoline retail prices averaging $2.27/gal in December compared with diesel fuel prices at $2.87/gal.
U.S. average gasoline and diesel prices both decline
The U.S. average retail price for regular gasoline decreased three cents from the previous week to $2.80 per gallon as of July 20, 2015, 79 cents per gallon less than the same time last year. The Rocky Mountain price increased two cents to $2.84 per gallon and the West Coast price increased two cents to $3.60 per gallon. The Midwest price registered the largest weekly decrease, a five cent drop to $2.67 per gallon. The East Coast and Gulf Coast prices both declined four cents to $2.67 per gallon and $2.49 per gallon, respectively.
The U.S. average price of diesel fuel decreased three cents from last week to $2.78 per gallon, $1.09 per gallon lower than the same time last year. Prices declined in all regions with the largest decrease occurring on the East Coast, where the price dropped four cents to $2.87 per gallon. The Gulf Coast, West Coast, and Midwest prices each dipped three cents from last week, to $2.67 per gallon, $3.00 per gallon, and $2.68 per gallon, respectively. The Rocky Mountains price decreased two cents to $2.77 per gallon.
Propane inventories gain
U.S. propane stocks increased by 0.3 million barrels last week to 87.7 million barrels as of July 17, 2015, 22.2 million barrels (34.0%) higher than a year ago. Midwest inventories increased by 0.6 million barrels and Rocky Mountain/West Coast inventories increased by 0.2 million barrels. Gulf Coast inventories decreased by 0.5 million barrels while East Coast inventories remained unchanged. Propylene non-fuel-use inventories represented 5.8% of total propane inventories.