Retail gasoline prices have yet again risen above the $2 gal mark nationally, but it is unlikely that a run to $3 gal or more will happen this summer, according to the Energy Information Administration.

The EIA also said that demand is flattening out and is likely to remain flat or grow modestly over the warmer months if the economy does not worsen.

The administration does predict that prices will average more than $2 gal over the summer since crude oil prices have risen by about $17 bbl, which translates to about 42cts gal.

Production cuts by the Organization of Petroleum Exporting Countries will strengthen crude oil markets, the EIA states. But steadying gasoline demand as we head into the warmer months, which typically encourage more driving due to pleasant weather conditions, may bolster both crude oil and gasoline prices.

“While gasoline consumers may be irked at paying over $2 per gallon for much of this summer, it doesn’t look like 2009 will produce a spike in prices that comes anywhere close to what occurred last summer,” according to the report.

Demand declined substantially over the past year, bottoming in September from a combination of high gas prices, the economic downturn and hurricane-related disruptions.

But demand has recovered somewhat since then and shows signs that it will flatten out, or even edge up, during the summer months, according to the EIA. In order for demand growth to occur, however, retail prices would need to remain low relative to year-ago levels and the economy would need to either remain in its current state or improve.

The administration’s data shows that the decline rate shrank to 1.4 percent in January from the 4 to 6 percent decline rates seen last summer before September’s drop.

While weekly figures showed more dramatic declines in demand, the overall monthly rate for January showed a smaller decrease, according to the EIA.
Gasoline demand has continued to strengthen in February and March. The four-week average ending March 27 shows a 9.038 million bpd demand rate, 0.2 percent lower than during the same period last year.

Refining margins dropped to very low levels over the winter, and prompted refiners to cut capacity utilization rates to an average of less than 83 percent year-to-date, almost 5 percentage points below the five-year average rate for this period.

Reduced operating rates and steadying demand have pressured gasoline crack spreads upward from their earlier lows and have limited the growth in gasoline inventories, which are roughly 5 percent lower than they were at this time last year.

Despite lower inventories, surplus refining capacity in the U.S. and Europe will limit price increases, the EIA states.

Since distillate fuel margins have fallen from extremely high levels in 2008, higher gasoline margins may encourage refiners exiting maintenance to shift product yields toward more gasoline production, bolstering supply and capping supply-side pressures on retail prices.

The EIA contends that with over 4.0 million bpd of excess crude oil production capacity, any surge in demand on a recovering economy could be met by increased production, mainly from OPEC countries.