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Economy in Brief

Gasoline Prices Up With Demand
by Tom Moeller July 11, 2006

Retail gasoline prices rose another four cents last week to an average $2.97 per gallon (27.7% y/y).

Demand for motor gasoline was quite strong during June. According to the Oil and Gas Journal's estimates, demand rose 5.6% from the May average and rose 6.5% from June of 2005. The US Dept. of Energy's figures peg demand up as well but to a lesser degree

Yesterday, in spot market trading the price for a gallon of regular unleaded gasoline fell seven cents to $2.13.

In 2005 petroleum companies began eliminating MTBE from reformulated gasoline (RFG) and have replaced it with ethanol. The last remaining markets for MTBE RFG are in the final stages of switching to RBOB (Reformulated Blendstock for Oxygenate Blending). As a consequence, prices for RFG in the Haver databases are being discontinued and new regular and premium RBOB prices are being added.

The New York Mercantile Exchange introduced a RBOB futures contract in January and traders are gradually migrating to the new RBOB contracts. RFG contracts will end with the January 2007 contract. While these changes are important, two-thirds of all gasoline consumed in the US is still conventional and not impacted by these changes.

The domestic spot price for a barrel of West Texas Intermediate fell for the third straight day on Monday. Nevertheless, at $73.63 per bbl. the price was nearly 4% higher than last month's average.

What the Fifth District's only major oil refinery explains about high gas prices in the wake of Hurricanes Katrina and Rita from the Federal Reserve Bank of Richmond is available here.

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