| U.S. Economy
U.S. Gasoline Prices Surge in Late Summer
Stephen P. A. Brown looks at how gasoline prices reached their
current heights and what we might expect in the next few months.
U.S. consumers have
been seeing escalating gasoline prices at the pump—as spot
gasoline prices rose more than 30 cents per gallon from mid-June
to mid-August 2003. Gains in crude oil
prices contributed to the early summer rise in gasoline prices.
Crude oil prices rose more rapidly than gasoline prices from March
to June, and the early summer gains in gasoline prices brought
them back into alignment with crude oil prices.
The later summer
increase in gasoline prices put gasoline well above its historical
relationship with the price of crude oil. The blackout
on the East Coast closed many refineries, and they were slow to
return to full production. Refinery outages on the West Coast and
a rupture in a gasoline pipeline in Arizona also contributed to
reduced supplies of gasoline. In addition, a surge in gasoline
demand caught the refining industry by surprise. Weak gasoline
demand in late spring and early summer led to reduced gasoline
production, which meant inventories were too low to accommodate
the late summer surge in demand. Consequently, gasoline inventories
were reduced to low levels and prices rose sharply.
Depending on
the region in which they are traveling, consumers are likely
to see gasoline price increases somewhat
different from those experienced on the spot market. As a result
of environmental regulations, gasoline markets have regionalized—with
many different formulations around the country. Thus, a severe
shortage in one region cannot be met with shipments from another.
The sharp gains
in gasoline prices are likely to be short-lived. The futures
market indicates that gasoline prices will probably
fall back into alignment with crude oil prices a few months after
the summer driving season ends. Gasoline prices are
then expected to move generally with developments in crude oil
prices.
Some industries—such as airlines and trucking—are
hurt by higher prices for refined products, but strong prices for
refined products should have a net beneficial effect on the Eleventh
District economy as long as it exports refined products to other
states.
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Stephen P. A. Brown is director of energy economics and microeconomic policy analysis at the Federal
Reserve Bank of Dallas.
SUGGESTED
CITATION:
Brown,
Stephen P. A. (2003), "U.S. Gasoline Prices Surge
in Late Summer,"
Federal Reserve Bank of Dallas Expand Your Insight,
August 29, http://www.dallasfed.org/eyi/usecon/0308gas.html
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