Slide 5 of 11
Notes:
- Next we examine the wholesale market’s added contribution to gasoline price variation and analyze the factors that impact the gasoline balance. There are two points to take away from this chart:
- The U.S. market moves with the world market, as can be seen with the high inventories in 1998, being drawn down to low levels during 1999.
- Crude and product markets are not independent. Crude oil and product markets move together fairly closely, with some lead/lag effects during transitions.
- The relationship between international crude oil markets and domestic product markets raises another issue. A subtle, but very important point, lost in recent discussions of gasoline price increases:
- The statement has been made that crude markets are not a factor in this past spring’s high gasoline prices, since crude prices were relatively constant during that period.
- This misses the crucial point that international petroleum markets set the stage for the gasoline price increases we experienced. The international market tightened, reducing inventories for both crude and products to very low levels this spring. There was no cushion for unexpected changes in supply or demand. This lack of cushion set the stage for this spring’s price runup.
- Other factors, such as little excess refining capacity and distribution system constraints, were also at work, which EIA has discussed in recent testimony and elsewhere. But crude markets had an important role in this spring’s price runup. Had inventories been high, we likely would not have seen prices rise as much as they did.
