Gas Prices Rising After Slumping to Five-Week Low

Climbing wholesale gasoline costs are poised to push higher the U.S. regular grade retail gasoline average when the Energy Information Administration releases its survey results for May 31 from a five-week low of $3.849 gallon set on May 23, reversing two consecutive weeks in which the average fell by nearly 12 cents per gallon.

The U.S. retail average had increased for seven consecutive weeks before the two-week decline, climbing 40.3cts gallon or 11.3% during that period to a $3.965 gallon better than 32-month high. So far this year through May 23, the U.S. retail gasoline average has surged 79.7 cents or 26.1%.

In May, wholesale gasoline costs moved lower, in part, on broad-based economic data that suggested the U.S. economic recovery had slowed, which would imply reduced demand for fuel. Part of the reason for a weakening economic recovery was high oil prices, with retail gasoline costs viewed as a tax on the consumer.

Additionally, high oil prices were seen eroding gasoline demand, which is cumulatively down 0.5% from Jan. 1 through May 20 compared with the similar period in 2010, according to data from the Energy Information Administration (EIA).

The Memorial Day weekend inaugurates the summer driving season, a period when gasoline demand peaks for the year, with the consumption rate for the three-day holiday observed for indications on how robust demand will be for the full summer.

SpendingPulse, which is published by MasterCard Advisors, the professional arm of MasterCard Worldwide, also compiles weekly pricing and demand data for gasoline. They noted very strong demand during the 2007 Memorial Day weekend, with retail outlets pumping 37 million barrels for that year’s holiday. Retail gasoline prices surged 22% year-on-year from the $3.20 gallon 2007 Memorial Day average to $3.89 gallon for the 2008 holiday weekend, and gasoline sold tumbled 6% from the prior year to 34.6 million barrels.

In 2007, “The economy was humming along and the average price at the pump was $3.20. While at that point it was considered high, the economic situation was such that it was able to absorb those prices,” said John Gamel, director of economic analysis for MasterCard Advisors SpendingPulse, in commenting on the data points.

For the 2009 Memorial Day weekend, the average gasoline price was 38% lower than year prior, while total barrels of gasoline pumped for the holiday was up 2% at 35.3 million. For the 2010 holiday, barrels of gasoline pumped increased another 2% to 36.1 million while gasoline retail prices rose 14% from year prior.

Holiday Travel Strong
AAA projected holiday travel for this year’s holiday to be on par with the 2010 Memorial Day holiday weekend.

Gasoline prices headed higher leading up to the Memorial Day weekend due, in part, to a spate of refinery outages. Some of the outages were brief weather-related outages, including at two refineries in Texas City, Texas, owned and operated by Valero Energy and Marathon Oil that were shut by a citywide power outage. There were a number of refinery outages in the upper Midwest, including in Illinois at ExxonMobil’s Joliet refinery, which has pushed higher wholesale gasoline costs sharply in the Chicago market.

Oil prices are also moving higher following the shutdown of the Keystone Pipeline over the holiday weekend caused by a leak at a pump station in Kansas. The pipeline transports crude oil from Canada to the storage hub in Cushing, Oklahoma, which serves as the underlying delivery location for the New York Mercantile Exchange light sweet crude oil futures contract. NYMEX crude prices rallied to a three-week high on the outage, which will continue to push gasoline prices higher in early June.

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 15 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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