Factors Impacting Gasoline Prices and Areas for Further Study

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					Factors Impacting Gasoline
Prices and Areas for Further
           Study
               John Cook
    Energy Information Administration

         FTC Public Conference
            August 2, 2001
                        Different Factors Impact Different Aspects of
                                       Gasoline Price
                         Spot & Retail Gasoline Price Excl Tax, Crude Oil
                         Price
                        140

                        120
                                                     Retail Regular
     Cents Per Gallon




                        100                                      GC Spot Gasoline
                        80

                        60

                        40

                        20                      Crude Oil
                         0
                              Jan-90

                                       Jan-91

                                                Jan-92

                                                         Jan-93

                                                                  Jan-94

                                                                           Jan-95

                                                                                    Jan-96

                                                                                             Jan-97

                                                                                                       Jan-98

                                                                                                                  Jan-99

                                                                                                                            Jan-00

                                                                                                                                     Jan-01
Source: EIA Monthly Retail Prices, Reuters Spot Regular Conventional Gasoline Prices, EIA Refiners Acquisition Cost of Crude OIl
                  Correlation of Price to Inventory Levels
                 WTI Price & OECD Stock Deviation from Normal
            36                                                                                                                                           300

                                                              High Inventories
            30                                                                                                                                           200




                                                                                                                                                                Million Barrels
            24                                                                                                                                           100
 $/Barrel




            18                                                                                                                                           0

            12                                                                                                                                           -100
                          Low Inventories
            6                                                                                                                                            -200
                                                              Stock Deviation from
                                                              Normal
            0                                                 WTI                                                                                        -300
                 Jan-94


                                   Jan-95


                                                     Jan-96


                                                                        Jan-97


                                                                                          Jan-98


                                                                                                            Jan-99


                                                                                                                              Jan-00


                                                                                                                                                Jan-01
                          Jul-94


                                            Jul-95


                                                               Jul-96


                                                                                 Jul-97


                                                                                                   Jul-98


                                                                                                                     Jul-99


Source: EIA                                                                                                                            Jul-00
                             Crude Prices Strongly Related to OECD
                                  Crude & Product Inventories
                       35 WTI Actual and Forecast Based on OECD Stocks

                       30
  Dollars per Barrel




                       25             Actual


                       20

                       15
                                                                 Forecast

                       10
                            Jan-92


                                     Jan-93


                                               Jan-94


                                                        Jan-95


                                                                     Jan-96


                                                                              Jan-97


                                                                                       Jan-98


                                                                                                Jan-99


                                                                                                         Jan-00


                                                                                                                  Jan-01
Source: EIA and OECD
                    Gasoline Prices Also Influenced by Regional
                             Gasoline Product Markets
                   360
                               U.S. Crude Oil Actual


                   320
 Million Barrels




                   280
                         Crude Oil Lower Operational Inventory

                   240   U.S. Gasoline Actual


                   200
                         Gasoline Lower Operational Inventory
                   160
            Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01
         NOTE: Colored Bands are Normal Stock Ranges
Source: History -- EIA
                     Tight Product Balance Pushes Up Product
                            Spread (Spot Product – Crude Price)
                   120
                         Weekly Average Crude Oil & Gasoline Spot
                                                                 Mar-May 2001:
                                                                 21-cent Spread
                   100
                                          Average Summer
                                          2000: 15-cent Spread
Cents per Gallon




                   80
                                   Average Summer
                                   1999: 8-cent Spread
                   60

                   40

                   20                               Gulf Coast Regular Conventional
                                                    West Texas Intermediate
                    0
                     Jan-   Jul-   Jan-    Jul-   Jan-   Jul-    Jan-   Jul-   Jan-   Jul-
                      97     97     98      98     99     99      00     00     01     01
       Source: Reuters
 Retail Price Changes Lag Spot Prices
130                                                                                                                      172
120                                                                                                                      162
110                                                                                                                      152
100                                                                                                                      142
 90                                                                                                                      132
 80                                                                                                                      122
 70                                                                                                                      112
                                                                                    Spot
 60                                                                                                                      102
                                                                                    Retail
 50                                                                                                                      92
 40                                                                                                                      82
 30                                                                                                                      72
      1/99
             3/99
                    5/99
                           7/99
                                  9/99
                                         11/99
                                                 1/00
                                                        3/00
                                                               5/00
                                                                      7/00
                                                                             9/00
                                                                                     11/00
                                                                                             1/01
                                                                                                    3/01
                                                                                                           5/01
                                                                                                                  7/01
Cumulative Gasoline Price Pass-through
        New       Central    Lower                Gulf    West
 Week                                   Midwest
        England   Atlantic   Atlantic             Coast   Coast

  1      16%        13         15         39       12      21
  2       28        26         32         60       31      40
  3       38        37         43         71       41      50
  4       50        48         53         79       50      60
  5       61        57         64         85       58      69
  6       69        66         72         92       66      76
  7       74        73         77        100       73      83
  8       78        80         85                  79      88
  Illustration of How Lag Effect Dampens and
  Slows Retail Price Changes from Wholesale


                       S IM P L IF IE D E X A M P L E O F L A G E F F E C T
                        S p o t P ric e        R e ta il Im p a c t F ro m :
                                                                                    R e ta il P ric e
                          C hange         1 0 In c re a s e    1 0 D e c re a s e
B e fo re M o n th 1   $          -                                                  $         1 .4 0
M o n th 1             $         0 .1 0 $             0 .0 5                         $         1 .4 5
M o n th 2             $        (0 .1 0 ) $           0 .0 5   $           (0 .0 5 ) $         1 .4 5
M o n th 3             $          -                            $           (0 .0 5 ) $         1 .4 0
       Recent Weekly Retail Price Changes
            Have Been as Expected
8
6
4
2
0
-2
                                                Actual Change
-4
-6                                              Forecast Change

-8
     1/01

            1/01

                   1/01

                          2/01

                                 2/01

                                        3/01

                                               3/01

                                                      4/01

                                                             4/01

                                                                    5/01

                                                                           5/01

                                                                                  6/01

                                                                                         6/01

                                                                                                7/01

                                                                                                       7/01
Summary: Most Gasoline Price Movement Can
  Be Explained As Rational Market Behavior


• EIA’s work to date has demonstrated rational
  market behavior behind gasoline prices

• While much price variation can be explained,
  there is room for further study