Fuel Decline Streak Ends

By Brian L. Milne, Refined Fuels Editor for DTN

Wholesale gasoline prices posted double digit increases in most metropolitan regions across the U.S., jumping 20 cents or more in Chicago and Cleveland, to reverse most of the decline in the wholesale market experienced during the first week of December primarily on expectations for supply cuts.

The wholesale gasoline market also reacted to gains in the stock market last week that suggest to some that the worst of the negative news is out, setting the stage for a slow grind higher that, in turn, would support increased demand for gasoline. We’ll see.

On Dec. 17, the Organization of Petroleum Exporting Countries (OPEC) is widely expected to cut their crude oil production targets dramatically, by as much as two million barrels per day in an effort to stop the slide in oil prices.

Gasoline demand has edged higher in December, with lower retail prices seen prompting drivers to increase their road travel. Typically, holiday travel kicks in with Thanksgiving after slumping after the summer, too.

However, demand remains below year-ago levels, with the Energy Information Administration (EIA) reporting gasoline demand down 3.4% so far this year versus the same timeframe in 2007.

Lower gasoline demand does seem to be an enduring trend, at least to the Department of Transportation, with Transportation Secretary Mary E. Peters reporting on Friday that Americans drove 3.5% less, or 8.9 billion fewer vehicle miles traveled, in October versus October 2007—the sharpest decline of any October since 1971.

“The fact that the trend persists even as gas prices are dropping confirms that America’s travel habits are fundamentally changing,” said Peters.

The pop in wholesale gasoline prices during the second week of December will slow the slide in retail gasoline prices in markets across the U.S., potentially halting and reversing the decline in several markets this week.

Having said that, the wholesale markets remain volatile and subject to another reversal lower that would help to hold retail gasoline prices to their lowest level since early 2004.

About the author Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at brian.milne@dtn.com.

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