Summer Gas Prices Expected to Average About $2.28 EIA Offers Clues for Retail Gasoline Prices Spot Price Pass-through Points to Climbing Costs at the Pump According to the Energy Information Administration, forecasting, as anyone engaged in such efforts will say, is either an art or a very inexact science. While predicting the weather may be even more difficult than forecasting energy prices, the process is similar: you look at historical patterns, tendencies, and relationships, and make a "best guess" at some future outcome, based on the evidence you see today. And though some may forecast winter weather by looking at caterpillars, the predictions with the best track records are made using the same elements that the EIA uses to forecast energy prices: lots of historical data, analyzed using the proper statistical techniques. As such, the EIA notes that retail gasoline price changes in the immediate future can be predicted by looking at recent spot price changes. Since roughly mid-February, when both spot and retail gasoline prices were relatively stable for a few weeks, the weighted average U.S. spot price for regular gasoline has risen by about 28 cents, from $1.28/gal on February 18 to $1.56/gal as of March 28, while EIA's weekly retail price has risen 25 cents, from $1.905/gal to $2.153/gal, over roughly the same period. Thus, by this approach, only about 3 cents of spot price increases currently remain to be passed through to the retail level. This, of course, only considers price changes already "in the pipeline" - so if spot prices were to rise further (or fall) before the remaining 3 cents or so passes through, retail prices would change by more or less, accordingly. And given normal supply and demand patterns, especially with the approach of the summer driving season, it is a near-certainty that there will be further changes in spot gasoline prices, with or without changes in the underlying crude oil prices. Another way of looking at pass-through is that when all spot price changes have been transmitted to retail - in other words, the relationship between spot and retail prices is at equilibrium - the differential between the U.S. average spot and retail prices for regular gasoline is about 60 to 65 cts/gal, of which about 44 cents is taxes. (The average differential in 2004 was 64 cents.) Based on this relationship, the current (March 28) average spot regular gasoline price of $1.56/gal should translate to about $2.16 to $2.21/gal at retail, compared to the current price of $2.15/gal. All of the estimates above are for the U.S. average only. Both price levels and changes can vary significantly among regions. While knowing these relationships may provide small comfort, if any, to motorists who are now paying more than ever before for gasoline (in terms of prices that have not been adjusted for inflation), at least it may help to de-mystify the process by which retail gasoline prices change over time. Turn to DTN’s MarketWire for the latest spot prices for gasoline, diesel fuel and heating oil. In addition to daily pricing updates, MarketWire offers intraday price changes, as well as news and analysis of the volatile spot markets. For more information, please e-mail MarketWire Editor Brian L. Milne at brian.milne@dtn.com. Web source: http://oilspot2.dtnenergy.com/e_article000379567.cfm?x=b4FVqdN,bCDqgKf
