U.S. Economy
U.S. Gasoline Prices on the Rise Once Again

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 seen escalating gasoline prices at the pump. Spot gasoline prices rose more than 30 cents per gallon during the first four months of 2004 (see chart). Gains in crude oil prices contributed about half of the rise, but gasoline prices have risen much more sharply than crude. Market participants recognized that gasoline inventories were well below normal as the nation made a transition from the winter heating season to the summer driving season. Severe winter weather pushed back the date at which refineries could switch from their winter mix of products to their summer mix.

With low gasoline inventories as we enter the peak driving season, the futures market shows gasoline prices set to rise another 15 cents per gallon in late spring or early summer. Although the futures market shows gasoline prices moderating over the summer and fall, it also shows these prices well above their historical relationship with crude in both seasons. Gasoline prices are expected to reestablish alignment with crude oil prices only as we approach winter.

Depending on the region where they are traveling, consumers are likely to have seen somewhat different increases in gasoline prices than have been experienced on the spot market. As the result of environmental regulations, gasoline markets have regionalized—with many different formulations around the country. As a result of this regionalization, a severe shortage in one region cannot be met with shipments from another.

5-7-2004

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