By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Retail gasoline prices continued to move higher through mid January, climbing when values typically flounder near annual lows during a time of year when winter weather usually dampens driving demand. Gasoline demand is nearly 2% higher during the four weeks ending Jan. 7 compared with the corresponding period a year ago, but that doesn’t tell the story of why the U.S. gasoline retail average reached a $3.089 gallon 27-month high on Jan. 10 according to the Energy Information Administration (EIA), with prices still moving higher.
The oil market is again in an extended bull trend on expectations that economic growth in the U.S. and elsewhere in the world, primarily Asian nations led by China and India, will spur increasing demand for oil and its byproducts.
In fact, recent data shows diesel demand surged in China late last year, while the EIA and Paris-based International Energy Agency recently revised higher their expectations for increased global demand for oil for 2010 and this year. A late year jump in oil demand in 2010 caught forecasters on the low end of their projections, partly triggering the upside demand adjustments. So too, has rosier projections for global economic expansion this year, including in the U.S., which has prompted forecasters to further revise higher the world’s expected appetite for oil in 2011.
On Jan. 11, the EIA revised higher its price outlook for crude, gasoline and diesel, now projecting West Texas Intermediate crude oil, the U.S. crude benchmark to average about $93 a barrel in 2011, which is $14 higher than the 2010 average price. This high cost of the raw material for making gasoline explains much of the higher revision in retail fuel prices, with an increase in processing costs also driving up prices at the pump.
Higher ForecastsEIA jacked up its outlook for the 2011 US average price of regular grade gasoline 17 cents from its December forecast to $3.17 gallon, and sees it at $3.29 in 2012. This compares with a 2010 average of $2.78 gallon. Moreover, EIA expects summer gasoline prices to run 5 cents over the full year average while drivers in California should see their prices tracking 25cts above the national average during the summer driving season.
Analysts with the EIA said too, that there is a 25% probability that the average tops $3.50 gallon in June through September and a 10% probability that it exceeds $4 per gallon in August and September.
For on-highway diesel fuel, EIA is projecting a $3.40 gallon 2011 average, revising its forecast up by 17 cents from December. If realized, this year’s average price for diesel fuel sold to consumers will be 41cts above the 2010 average of $2.99 per gallon.
For the current week, the U.S. gasoline average is poised to again move higher based on climbing wholesale costs for the past week. Wholesale prices could come under pressure in the near-term with the Jan. 17 restart of the Trans Alaskan Pipeline system after being shut for more than a week by a leak, which would eventually pressure retail prices possibly later this month into early February. Currently however, the trend remains up, with selloffs likely being limited.
About the AuthorBrian 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 15 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.