US EIA Apr Outlook: Oil Mkt To Cont Tighten Next 2 Yrs -2

WASHINGTON (MNI) – The following is the second part of excerpts from the Energy Information Administration’s April Short-Term Energy Outlook published Tuesday:

Summer Transportation Fuels Outlook

The continuing economic recovery tends to boost gasoline and diesel fuel consumption, while the effect of higher retail prices tends to dampen it. These counter-balancing forces are expected to be prominent features of the summer driving season, which EIA defines as April 1 through September 30.

Prices.

EIA expects regular-grade gasoline retail prices, which averaged $2.76 per gallon last summer, will average $3.86 per gallon during the current driving season. The projected monthly average regular retail gasoline price peaks this year at $3.91 per gallon in early summer. Diesel fuel prices, which averaged $2.98 per gallon last summer, are projected to average $4.09 this summer. Weekly and daily national average prices can differ significantly from monthly and seasonal averages, and there is are also significant differences across regions, with monthly average prices in some areas exceeding the national average price by 25 cents per gallon or more.

As in the case of crude oil, the market’s expectation of uncertainty in monthly average gasoline prices is reflected in the pricing and implied volatility of futures options contracts. New York Harbor reformulated gasoline blendstock for oxygenate blending (RBOB) futures contracts for July 2011 delivery over the 5-day period ending April 7, averaged $3.15 per gallon. The probability the RBOB futures price will exceed $3.30 per gallon (consistent with a U.S. average regular gasoline retail price above $4 per gallon) in July 2011 is about 33 percent.

Because taxes and retail distribution costs are generally stable, movements in gasoline and diesel prices are driven primarily by changes in crude oil prices and wholesale margins. Crude oil prices that differ from our forecast would be reflected in the price of motor fuels. Each dollar per barrel of sustained change in crude oil prices relative to the forecast translates into approximately a 2.4 cent-per-gallon change in product prices, absent the consideration of factors specific to the gasoline and diesel fuel markets.

Retail price projections reflect higher prices for the refiner acquisition cost of crude oil, expected to average $112.50 per barrel this summer compared with last summer’s average of $74.70 per barrel. EIA expects wholesale gasoline margins (the difference between the wholesale price of gasoline and the refiner acquisition cost of crude oil) to average 53 cents per gallon this summer compared to 36 cents per gallon last summer, largely brought about by continuing strength in world-wide liquid fuels consumption. Similarly, EIA forecasts higher wholesale diesel margins this summer (60 cents per gallon) than last summer (40 cents per gallon).

The projected increase in gasoline prices suggests that vehicle fueling costs for the average U.S. household will be about $825 higher in 2011 than they were in 2010. According to the 2009 National Household Travel Survey (Transportation Energy Data Book, Tables 4.1 and 8.6), U.S. households drove an average 20,251 miles with an average passenger car fuel efficiency of 22.6 miles per gallon. Assuming no change in travel or average fuel economy, the increase in the average annual gasoline retail price (all grades) from $2.40 per gallon in 2009 to $2.83 per gallon in 2010 and a projected $3.75 per gallon in 2011 implies an increase in average annual household expenditures on gasoline from $2,150 in 2009 to $2,535 in 2010 and $3,360 in 2011.

Motor Gasoline.

During this summer season, projected motor gasoline consumption increases by 0.5 percent over last summer. Finished motor gasoline is supplied by four sources: domestic refinery output, domestic production and net imports of fuel ethanol for gasoline blending, primary inventories, and net imports of gasoline and gasoline blending components. EIA expects that domestic refinery production will increase by 0.6 percent from last summer, in line with growth in consumption. Projected blending of fuel ethanol increases by 5 percent from last summer. Forecast total gasoline net imports are projected to decline by about 10 percent from the previous summer. Fuel ethanol blending into gasoline averaged 868,000 bbl/d during summer 2010 and EIA forecasts an average 912,000 bbl/d this summer, which is about 9.8 percent of total gasoline consumption.

At the onset of the summer driving season (April 1) total gasoline stocks, at 215.7 million barrels, are 8.3 million barrels below the level of a year-ago, but still about 1 million barrels more than the previous 5-year average for beginning-of-season stocks. Stock withdrawals have not been a significant motor gasoline supply source for the summer season in recent years and are projected to average 48,000 bbl/d this summer, compared with 26,000 bbl/d last summer.

For the 2011 summer season, EIA expects net imports of motor gasoline and blending components to average 630,000 bbl/d, which is lower than the average 700,000 bbl/d seen last summer, due primarily to continued growth in domestic supplies and continuing strength in gasoline export markets.

Diesel Fuel.

Projected distillate fuel consumption, which includes diesel fuel and heating oil, averages 3.81 million bbl/d this summer, up 2.3 percent from last summer. That growth is buoyed by continued strength in manufacturing output and foreign trade.

Distillate fuel is supplied by four sources: domestic refinery output, biodiesel blending, primary inventories, and net imports. Refinery output of distillate fuel is projected to average 4.36 million bbl/d this summer, up slightly from the 4.35 million bbl/d last summer.

Biodiesel is a small but growing part of the distillate pool. Biodiesel consumption averaged 20,000 bbl/d last summer and is expected to grow to about 46,000 bbl/d this summer, due in part to the resumption of the biodiesel tax credit.

Distillate inventories are projected to start the summer at 153.5 million barrels, up from 146.0 million barrels last year at this time and a new record for the start of the summer season. Distillate inventories typically build during the summer season in preparation for the heating season. This summer, the build is forecast to average 40,000 bbl/d, far less than the 113,000 bbl/d recorded last summer and the 5-year average summer build of 121,000 bbl/d. As a result, end-of-summer stocks are 161 million barrels, down from the record 166.7 million barrels recorded last summer, but still 11 million barrels above the previous 5-year end-of-summer average.

Continuing strong world demand for distillate fuels is forecast to contribute to U.S. net exports of distillate fuel averaging 500,000 bbl/d this summer, up from 460,000 bbl/d last summer. In contrast, the United States was a net importer of distillate fuel, averaging 120,000 bbl/d during the summers of 2000 through 2007.

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** Market News International Washington Bureau: 202-371-2121 **

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