U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
APRIL 8, 2003

Limited Gasoline Price Relief Expected This Summer

National average retail gasoline prices, currently down from the highs of mid-March, are expected to average $1.56 per gallon for regular during the summer (April through September) according to forecasts released today by the Energy Information Administration (EIA) in its April Short-Term Energy Outlook. The projected price is 17 cents per gallon above last summer's average, but close to average summer prices in 2000 and 2001. It falls well short of the real (adjusted for inflation) all-time summer high set in 1980 of $2.77 per gallon expressed in year 2003 dollars. Because of uncertainties inherent in world oil markets and domestic refinery and distribution systems, prices as much as 16 cents per gallon above or below the projected summer average fall within the 95 percent confidence interval for the forecast.

High crude oil costs, low motor gasoline inventories and growing gasoline demand are factors contributing to high gasoline prices this year. Gasoline inventories totaled 200 million barrels at the end of March, about 13 million barrels below last year at the same time and 6 million barrels above the recent low seen in 2001. The inventory situation is expected to worsen somewhat by the end of the current quarter as gasoline demand begins to increase.

Comparatively high average gasoline refiner margins are expected to prevail through most of the driving season, adding to wholesale and retail price pressures above those stemming from high crude oil prices. Nevertheless, under the assumptions that neither the war in Iraq nor the conflict in Nigeria generates losses to world oil supply that are not made up by other suppliers, crude oil prices and gasoline pump prices should ease gradually as the summer progresses. The average pump price in the third quarter of 2003 is expected to be about 10 cents per gallon below the second-quarter average.

It should be noted that the 12-percent increase in retail gasoline prices over last summer is expected to constrain growth in motor fuel demand. Motor gasoline demand is projected to increase by 1.6 percent this summer, reflecting average growth of 1.3 percent in vehicle miles traveled and continued losses in fleetwide fuel efficiencies brought about by continued consumer preference for large vehicles. The five-year average for summer gasoline demand growth is 1.9 percent.

Other highlights for the Short-Term Energy Outlook include:

• Crude oil prices fell sharply at the onset of war in Iraq. EIA projects an average spot price for West Texas Intermediate (WTI) crude oil close to $30 per barrel in 2003. Uncertainties related to key oil production areas have changed since last month, as Venezuelan production has accelerated while Nigerian output has been reduced due to internal conflict. Meanwhile, production from Iraq is offline while the war continues and prospects for a return to normal production there are uncertain. On balance, Organization of Petroleum Exporting Countries (OPEC) oil output is now expected to be slightly higher (about 300,000 barrels per day) during the second quarter than previously projected, due to higher production from producers with excess capacity, particularly Saudi Arabia. However, oil stocks are expected to remain quite low in the United States and in the Organization for Economic Cooperation and Development (OECD) countries as a whole. Significant reductions in crude oil and petroleum product prices are thus not likely until late 2003 or early 2004.

• As a sign of the cumulative effects of reduced production and increased demand in world oil markets over the last year, commercial stocks of petroleum in the industrialized countries are well below average at this time. This condition is likely to support relatively high prices until additional supplies entering the market are adequate to begin the rebuilding process. Currently, commercial oil stocks in the OECD countries stand at approximately 2.39 billion barrels, compared to the 2.56 billion barrels average for end-March between 1998 and 2002. In March of 2002, OECD commercial stocks stood at 2.60 billion barrels. With Venezuelan production recovering toward capacity and with Saudi Arabia and other OPEC countries apparently willing to make up for much of any production temporarily lost due to the war in Iraq, the prospects for moving steadily toward more normal stock levels by the fourth quarter of this year are good, though hardly certain. Developments that could interfere with stock rebuilding would be: significant damage to Iraqi oil assets due to the war, continuing conflict in Nigeria, or unexpectedly high world oil demand. On the other hand, a quick resolution to the Iraq war and a near-term solution to the internal conflict in Nigeria could help accelerate the rebuilding process.

• During the forecast interval (between 2002 and 2004), total U.S. petroleum demand is projected to increase an average of 480,000 barrels per day, or 2.4 percent, per year. In contrast to the demand patterns seen in 2002, all of the major fuel categories are expected to contribute to that growth. Continued moderate economic recovery, the assumption of normal weather patterns and increasing supply/demand tightness in natural gas markets all are expected to contribute to the rise in petroleum demand.

• Average domestic crude oil production in 2003 is expected to decrease by 66,000 barrels per day, or 1.1 percent, to a level of 5.75 million barrels of oil per day. For 2004, a 2.4-percent decrease is expected, resulting in an average yearly production rate of 5.61 million barrels of oil per day.

• The level of working natural gas storage is estimated at 696 billion cubic feet at the end of March, the lowest end-March level in EIA records, which stretch back to 1976. Working natural gas storage now is 42 percent below the previous 5-year average. Eastern and producing region stocks are also at record lows. This means that between 2,200 and 2,300 billion cubic feet would have to be injected into storage between April 1 and October 31 to reach an aggregate level that is generally considered to be adequate for winter demand. Getting to normal storage before next winter will entail a combination of high spot prices during the spring and summer, strong natural gas drilling and development efforts, and normal weather. The downside risks for storage would be a hot summer, poor gas drilling results, or continued tight oil markets, which would result in lower-than-normal inventories and the possibility of a new round of gas price spikes next winter.

• With the 2003 economy expected to continue to recover, electricity demand is expected to increase by 0.8 percent. Little or no net weather-related demand growth would be expected under our assumption of normal temperatures for the remainder of the year. Demand growth of 2.9 percent in 2002 was based on both weather-related and economic-related factors. In 2004, annual electricity demand is projected to grow by 2.6 percent along with the economy.

The Short-Term Energy Outlook is published monthly on EIA's Internet Web site to meet the public's demand for timely energy data and forecasts. Users can view and download the forecast analysis by visiting: http://www.eia.doe.gov/steo.

-EIA-

EIA Program Contact: David Costello, 202/586-1468
EIA Press Contact: National Energy Information Center, 202/586-8800

EIA-2003-07

File Last Modified: April 8, 2003

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