Fuel Frenzy Continues

By Brian L. Milne, Refined Fuels Editor for DTN

The steady trend higher in retail gasoline prices across the U.S. since the start of January could stall in some metropolitan markets as month-end nears.

Wholesale gasoline prices across the country moved lower in most markets during the week leading up to Jan. 26 as driving demand decreased, although price increases were reported in the Rocky Mountain region wholesale market which has some of the country’s lowest prices this month.

Retail gasoline prices have marched higher in January after falling to five-year lows in December because of lower gasoline production. Amid the economic storm that has engulfed the country, energy prices have tumbled along with lower demand.

Oil refineries, which convert crude oil into gasoline and other fuels such as diesel and jet fuel, have reduced their production in an attempt to reconcile supply with lower demand. Those efforts have led to the price increase in the wholesale and, in turn, retail gasoline market this month.

Reduced Demand
Gasoline demand has been falling at a quicker rate than production, while imports of gasoline have increased from Europe as refiners across the Atlantic Ocean look to offload excess supply. In fact, government data shows that gasoline imports increased to a one-month high in mid-January while demand tumbled to a nearly three-and-a-half-year low, pushing supply levels up and wholesale gasoline prices higher.

Gasoline demand is also under pressure from a climbing unemployment rate, last reported at 7.2%. The less people employed, the fewer miles will be driven, with expectations that the unemployment rate will continue to increase in the coming months.

However, there is a view in the financial oil markets that crude oil prices established a low in mid January and will gradually move higher, helped by a sentiment that the production cut by the Organization of Petroleum Exporting Countries (OPEC) that took effect Jan. 1 is working to reduce supply.

Additionally, the reduction in gasoline production by oil refineries is expected to lower gasoline supply, with this combination seen sustaining a gradual increase in retail gasoline prices into the spring.

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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