Higher Crude Costs Drive Uptrend in Gasoline Prices

By Brian L. Milne, Refined Fuels Editor, Telvent DTN

The U.S. average retail price for regular grade gasoline dipped 1.6 cents from a six-month high to $2.876 gallon just ahead of the Thanksgiving holiday, but are again seen moving up with an early week rally in wholesale values.

Gasoline prices typically decline this time of year as driving demand eases, usually posting highs in the spring and summer months amid the anticipation and realization of higher fuel consumption during the warmer months. This year’s annual high was reached May 10 at $2.905 gallon, but could be overtaken should the trend in wholesale costs continue.

The advance in the wholesale market is being driven by higher crude costs, with the U.S. benchmark price seen having strong support at $80 barrel. A continuation of the uptrend could test the early November better than two-year high at $88.63 barrel, opening the door for a run at $90 barrel.

Crude oil rallied in early November on a weaker U.S. dollar. A weaker dollar requires domestic buyers to pay more for crude oil on the world market. A softer greenback also prompts increased investment in commodities like oil to hold value amid the currency depreciation.

However, the current rally is coming despite a stronger U.S. dollar, which has surged to a better than two-month high versus the euro, with more upside seen. The dollar is finding strength on European debt issues and as a safe haven investment following the recent artillery attack by North Korea against South Korea amid worry over an escalation in aggression in the region.

European Union finance ministers hammered out a weekend deal to aid Ireland’s debt woes, while also agreeing to shore up other euro governments. EU leaders are attempting to harness a greater contagion effect, with market concern now focusing on debt issues in Portugal, Spain and Belgium, which follows the Greek bailout in May.

The current uptrend in oil prices is finding support from ongoing improvement in the US economy, including signs that the consumer is again opening its collective wallet, bolstered by better-than-expected “Black Friday” sales. Oil demand is also expected to continue to grow globally in 2011, led by emerging nations in Asia.

Down only 2.9cts from the May 10 high as of Nov. 22, we could enter December with a US retail average regular grade gasoline price at a better than two-year high. The last time the average topped $3 gallon was Oct. 13, 2008 at $2.151 gallon, according to the Energy Information Administration, the statistical division of the Department of Energy.

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