Slide 6 of 11
Notes:
- To reinforce the impact that inventory levels (I.e., tight markets) have on price, note the variation in spot gasoline prices relative to crude oil prices, as shown by the blue band.
- Gasoline inventories indicate how tight the gasoline product market is in any one region. A tight gasoline market (i.e., inventories are low) generates upward pressure on spot prices beyond that attributable to crude markets. That is, wholesale prices are bid up by more than any underlying cost increases. This upward movement relative to crude prices can be measured or seen as an increase in the spread between spot gasoline prices and crude oil prices.
- The price spread between gasoline and crude oil normally rises in the spring and summer months, but the rise is greater in years when stocks are low. Compare 1999, when stocks were high to this year and last year, when stocks were low.
- But from the last slide, we showed how gasoline inventories are influenced by overall crude markets. Since the low gasoline inventories are not only influenced by local product markets, but also by the overall international petroleum market, the spot gasoline price is influenced by both markets.
- The remaining charts consider how this spot price is reflected or “passed through” to retail customers.
