Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline costs are moving sharply higher early in the fourth quarter primarily on a bullish market sentiment for all commodities in general, along with refinery downtime in key regional markets in New York and Chicago. Meanwhile, ethanol prices are again on the move higher, with the gasoline extender’s price premium to gasoline further boosting costs.
Nonfarm employment data for September released Friday (10/8) was bearish, showing a 95,000 increase in newly unemployed while the national unemployment rate held steady at a stubbornly high 9.6 percent. The job losses were from government, with more temporary workers hired for the census concluding their contracts, while local governments shed jobs amid growing fiscal burdens-a trend expected to continue. Private employers added 64,000 jobs in September. While less-than-expected and far fewer than needed to bring employment near the pre-recession national workforce level, new hiring by private employers has been steady.
Nonetheless, the much anticipated employment data, the last report before midterm elections on Nov. 2, highlighted the poor state of economic recovery in the United States. For fuel providers, high unemployment is bearish, closely correlating with less demand for gasoline. Indeed, federal data from the Energy Information Administration shows modest year-on-year growth in gasoline during the first three quarters compared with the same period in 2009 of 0.4 percent.
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Such an environment would suggest gasoline prices would be moving lower, with consumption set to slide further in November when considering the historical pattern. However, the unemployment report is increasing the likelihood for government intervention via looser monetary policy by the Federal Reserve. The Central Bank, which meets a day after midterm elections on Nov. 3, has been loudly signaling the prospect of adding to its balance sheet by purchasing assets. This would increase the money flow, i.e. turning on the printing presses for the greenback that would inflate prices for commodities as it weakens the value of the US dollar. Amid this expectation, the dollar slumped to an 8-1/2 month low versus the euro and a 15-year low against the yen. The expectation also triggered rallies in commodities and equities.
Speculators have greatly increased their market position for oil and gasoline prices to move higher in the coming months. While this position could suddenly shift, it has been the catalyst in pushing up oil and gasoline prices, which reached five month highs in early October.
Earlier this month, a fire forced ExxonMobil to cut output at its Joliet refinery in Illinois, with the refinery a key gasoline supplier to Chicago, pushing up wholesale costs in the Chicago marketplace and surrounding markets. Meanwhile, the New York market has seen higher gasoline prices because of extended downtime at ConocoPhillips Bayway refinery in New Jersey.
These realities are pushing retail prices higher across the country. The EIA reported the US average for regular grade gasoline at a near two-month high of $2.732 gallon as of Oct. 4. It will move higher this week.
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 firstname.lastname@example.org.