Retail Gasoline Prices Likely to Bounce Higher on Halloween

As expected, the Energy Information Administration’s US retail gasoline price average fell during the week-ended Oct. 24 following an increase during the previous week, and has now moved lower in seven of the past eight weeks. For the final week of October, we’re likely to see an increase in the average although wholesale gasoline prices were mixed during another volatile period of trading.

As of Oct. 24, the EIA reported its US retail gasoline average at $3.462 gallon, which is up 64.5cts from the year earlier period.

Seasonally, gasoline prices move lower this time of year, but can find support amid extended maintenance outages at US oil refineries called turnarounds, or for other shorter duration workarounds.

As has been the case for most of the year, outside influences that impact the economy has been the key driver in fuel valuations even though preliminary data from the EIA shows gasoline demand down 1.3% this year through Oct. 21 compared with the same period in 2010. One of those features has been the increased globalization of domestic gasoline wholesale prices.

In a recent report on its website, EIA highlighted the change in price markers for gasoline and diesel fuel from West Texas Intermediate to Brent earlier this year, with Brent crude trading at more than a $25 bbl premium to WTI at times. That spread has narrowed to below $20 bbl recently, but WTI remains at a steep discount to Brent, the European benchmark.

This column has discussed this market adjustment several times this year, which has everything to do with logistics. WTI is the US futures benchmark that takes delivery at the landlocked Cushing supply hub in Oklahoma.

A competed pipeline phase that linked Canada to Cushing earlier this year triggered a build in supply there, while lost supply from Libya due to civil war in the OPEC nation cut deliveries to Europe. North Sea production has also been beset with numerous production issues this year.

EIA notes that from Jan. 1 through Oct. 25, prices of Brent crude were up 20%, while the price of wholesale diesel fuel and gasoline on the U.S. Gulf Coast gained 21% and 13%, respectively. WTI edged up just 2% during this period.

The spread has narrowed recently in part with the death of Muammar Gaddafi, the former Libyan ruler. Additionally, Cushing supply has been drawn down recently ahead of year-end, as refiners look to cut their crude inventory to avoid paying tax on the inventory.

Price volatility in the wholesale gasoline market will continue through the rest of the year, with the most recent rally spurred on by an accord reached by European leaders addressing their two-year sovereign debt crisis. Although markets initially cheered the agreement, oil has moved lower since partly because details of the plan are lacking and some analysts wonder if the deal will actually be implemented when considering the complicated EU model, among other features.

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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