Gasoline Pump Prices to Continue Decline

Brian Milne, Refined Fuels Editor, Telvent DTN

Retail gasoline prices across the United States will continue to decline, as the impact of tumbling wholesale costs pull pump prices lower. Since posting a 15-month high in early January, wholesale gasoline costs are down nearly 9%, while retail prices have just inched lower. That lag in the pass through savings will continue to pressure retail prices into February.

Metropolitan gasoline markets across the country are being driven by national themes, with local markets typically flush with supply. One exception is markets in California, with the state’s wholesale market transitioning to more stringent gasoline specifications.

This is a seasonal change, with regulatory guidelines requiring a lower release of vapor emissions after allowing for a higher RVP release in the winter. Vapor emissions are sensitive to warmer weather, so regulations schedule these adjustments in RVP. Typically as markets make a seasonal change to the more stringent specifications, wholesale prices increase.

Overly optimistic financial oil markets priced in increasing demand for fuel in 2010, betting that the ongoing economic recovery would trigger more drivers on U.S. roadways. However, preliminary data continues to show weak demand for gasoline while national stockpiles of the fuel are increasing. A stubbornly high unemployment rate at 10 percent appears to be a drag on the gasoline consumption rate, which historically has always weighed on demand.

In fact, preliminary data details a modest decline in gasoline demand over the most recent monthly period compared with the same time a year ago when the US was in recession but had a lower unemployment rate.

There has also been a bearish shift in sentiment for the broader markets. The more optimistic of these tones are calling for a slower economic recovery while there is now frequent talk of the very real possibility of a double dip recession.

Global Impact
A crackdown on lending in China, which has helped to accelerate their ever expanding economy, was also a shot across the bow for commodity bulls. China’s expansion has included a voracious appetite for commodities that has triggered high global demand for products from oil to steel over the past several years.

Recently, easy lending requirements by the country has raised concern that Beijing would be confronting a bubble of their own, with the tightening in borrowing seen cutting into the country’s demand for oil.

The oil markets remain extremely volatile and could again reverse higher. However, the current downturn appears to have more to run, potentially dropping wholesale costs another 15 cents per gallon or more over the coming weeks. Indeed, gasoline prices typically post an annual low between December and February. So, market factors are aligning for a big drop in prices not too long after the US average for gasoline rocketed to its highest price point since October 2008.

View DTN’s Weekly and Historical Gas Prices.

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

css.php