Fuel on the Rise

By Brian L. Milne, Refined Fuels Editor for DTN

 

A surge in retail gasoline prices across the country’s major metropolitan markets will continue through the end of June, as climbing wholesale costs work through the supply chain to the gas pump.

 

Wholesale gasoline prices increased in nearly all metropolitan markets through the middle of June, with big gains registered along the East and West coasts as well as in Texas and Louisiana.

 

There was a welcome slowdown in the pace of climbing wholesale costs in the upper Midwest, which have spiked since May on low regional supply. Fuel suppliers were struggling to meet climbing regional demand, with local refinery production unable to fill the gulf between supply and consumption.

 

Gasoline flowing on pipelines from the Gulf Coast and Oklahoma markets helped to fill this void and slow the price gains.

 

To many, the damage is done. Retail gasoline prices in Illinois range from the mid $2.80s to nearly $3 per gallon, and they will continue to climb. Gasoline prices have also surged in the Milwaukee, Detroit, Cleveland and Indianapolis markets.

 

Nationally, retail gasoline prices have been climbing with crude oil, which topped $70 barrel earlier this month for the first time since October 2008. The rally is driven by market sentiment that demand for oil will climb when the economy recovers, and that the economy is indeed recovering.

 

Numerous analysts call the rally hollow, suggesting the recovery in both the economy and, subsequently, the demand for oil will be less robust than suggested by current prices. Holders of this viewpoint point to a “correction” that presses prices lower.

 

As this battle of views continues daily in the market, price forecasts from as late as April have been proven wrong. Most recently, the government’s statistics and analytical division, the Energy Information Administration, adjusted sharply higher, by 22 cents, its expected national average for regular grade gasoline in 2009 to $2.33 per gallon. Moreover, the EIA forecasts a monthly high for the national average of $2.70 a gallon to be set in July.

 

View DTN’s Weekly and Historical Gas Prices

 

Since it is an average part of the country, namely the upper Midwest and the West Coast will see much higher prices. Expect regular grade gasoline in these regions to top $3 gallon.

 

 

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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