Wholesale Gasoline Costs Surge on Fed’s Quantitative Easing

Brian L. Milne, Refined Fuels Editor, Telvent DTN

Wholesale gasoline costs were pumped higher by a sharp advance in New York Mercantile Exchange oil futures during the first week of November, with crude values spiking to a better than two-year high after the Federal Reserve announced a monetary policy aimed at spurring economic growth.

NYMEX oil futures are primarily financially traded derivatives contracts that are used as a price benchmark in setting wholesale spot gasoline and diesel prices. Spot prices typically guide price direction and value for wholesale costs at distribution terminals where jobbers and retailers lift supply for delivery to retail outlets.

The Fed said Nov. 3 that it would buy $600 billion in U.S. bonds through June 2011 with the design to lower interest rates and prompt increased borrowing from banks and drive investment in risky assets. This second round of quantitative easing, widely anticipated by the market, also has the side affect of weakening the US dollar, which tumbled to an 11-month low against the euro after the central bank’s decision was announced. Since crude trades globally in dollar denominations, the weaker greenback increases the acquisition cost for domestic buyers of oil. Moreover, the weaker dollar prompts investment in hard assets like commodities to stave off the currency’s depreciation.

Crude oil surged above $87 barrel last week, and analysts are anticipating a test of $90 barrel. Many also see the potential for crude to test the $100 bbl mark in the near-term, despite more than adequate supply to handle demand.

View Telvent DTN’s Weekly and Historical Gasoline Price Index.

Gasoline prices moved higher with crude despite its seasonal tendency to decline amid lower demand this time of year.

Gasoline prices in Chicago got an extra boost higher by a forced unit shutdown at a refinery in Illinois.

Late afternoon on Nov. 2, a fire at CITGO’s 167,000 bpd refinery in Lemont, Ill., forced shut the fluid catalytic cracking unit, which makes gasoline. The fire was brief, lasting 10 minutes, and subsequent repairs classified as minor, according to a company official that asked not to be identified. After surging on the news, Chicago spot gasoline prices eased Friday (11/5) on the rollover from cycle one to cycle two pipeline scheduling.

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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