Gasoline Prices Enter November Unusually Strong

Brian L. Milne, Refined Fuels Editor, Telvent DTN

Gasoline prices have shown contra-seasonal strength so far in the fourth quarter, carried higher by crude oil’s advance above $80 barrel, as well as on a tighter supply-demand balance in Europe amid a better than month-long strike in France. This trend is continuing into early November, underpinning higher costs for wholesale gasoline.

Wholesale gasoline costs were mixed across the U.S. with an upward bias. Gauging the timing of pass through costs can be challenging on a week-to-week basis, but the latest upside push in gasoline prices in a majority of regional markets augurs for a gain in the U.S. retail price average. The average, updated weekly by the Energy Information Administration (EIA), showed its first decline in four weeks on Oct. 25 at $2.817 gallon.

U.S. crude prices have held above $80 barrel for most of October, slipping below the psychologically significant round number only three times last month; and only once on a closing basis. This increase in raw material costs for making gasoline has supported higher gasoline prices.

Despite an oversupply, crude prices have found upside price support on macroeconomics, including the equities and currency markets. The markets have moved higher on expectations for heavy wins for Republicans in Tuesday’s midterm elections, with the working assumption that the Obama administration’s agenda has been anti-business. Expected Republican wins are seen countering this policy.

Also, the Federal Reserve is widely seen taking action to stimulate the U.S. economy through quantitative easing, which would increase the circulation of dollars. Such a measure has the goal of prompting increased investment to accelerate the slow pace of economic growth, but would also weaken the dollar. The dollar has weakened significantly since September on this expectation, with the Fed’s plans expected to be revealed on Wednesday. Annualized third quarter Gross Domestic Product growth of a paltry 2% announced on Friday in an initial estimate assures, some say, the expected action by the central bank.

A weaker dollar boosts crude prices since crude is traded internationally in dollar denominations. The weaker greenback has also prompted increased money flows into risky investments such as commodities in an effort to stave off the deflation in the currency.

On Friday (10/29), a nationwide strike in France ended at Fos-Lavera, the port of Marseille. The country’s 12 refineries were on strike in October along with many other industries to protest an increase in the retirement age from 60 to 62. The lower retirement age was installed in the early 1980s. Some strikers at refineries have returned to work. However, the massive strikes in France have drained supplies, with a number of gasoline stations briefly reporting no fuel in October. Europe traditionally exports gasoline to the U.S., with the strikes seen limiting that supply over the next couple of weeks while pushing higher diesel exports to the Old World.

New York wholesale costs were also underpinned by the shift to winter grade fuel at a 15psi RVP, which began trading in the regional spot market today. The market was underpinned by support as traders realigned the supply with demand.

Volatility is expected during the first week of November, with the business week ending with the unemployment report for October. Market estimates are calling for another small increase in jobs and for the national unemployment rate to remain high at 9.6%.

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.

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