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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