By Brian L. Milne, Refined Fuels Editor, Telvent DTN
The Energy Information Administration’s (EIA) U.S. retail regular grade gasoline average has now gained for four consecutive weeks through Jan. 9 to a $3.382 gallon two-month high, climbing 15.3 cents since Dec. 19. Of that total advance, 8.3cts of the gain took place during the week-ended Jan. 9, with retail prices goosed higher on growing tensions between OPEC member Iran and the U.S., and expected economic improvement in the U.S. Refinery shutdowns in Europe and in the Philadelphia-area also underpinned gasoline gains.
Pass through costs from the wholesale market to retail are difficult to time, but based on sliding wholesale values since Jan. 9, the US retail average should decline when next reported by the EIA. Retail prices in the Midwest have been under pressure especially, after wholesale costs tumbled sharply last week following the return to service of an Illinois refinery after an unexpected shutdown earlier in the month.
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Although wholesale costs have been under pressure, they are again rebounding in early trading this week, suggesting market volatility in the gasoline market will continue. In futures trading on the New York Mercantile Exchange, Reformulated Blendstock for Oxygenate Blending or RBOB, the national gasoline price benchmark, is again rallying. The contract reached a two-month high late last week before erasing the advance after the EIA showed dismal demand for gasoline and climbing inventory levels. The contract was again under pressure after Standard and Poor’s lowered the credit rating of nine European Union countries, including France, Spain and Italy, because of high debt levels and insufficient government policies in reining in that debt.
In trading following the observance of Martin Luther King Jr. Day, the contract is again rallying, approaching the two-month high. The advance was spurred by data reported from China showing that their economy expanded at an annualized rate of 8.9% in the fourth quarter 2011, which was less than during the comparable year-ago period but more than the market anticipated. The data suggested China’s economy continues to roar on despite slowing export sales amid euro zone maladies, while the slower year-on-year growth rate augurs for economic stimulus to be implemented by Beijing. These events imply that the world’s second largest oil consumer will pick up its pace of crude oil buying to support economic growth.
Overall weak fundamentals for gasoline in the U.S. will limit any price advance, and should pressure values should geopolitical issues, notably action to sanction Iranian oil, be pushed deeper into the future. However, look for the volatility to continue while U.S. crude oil trades on either side of $100 bbl.
The EIA estimates that U.S. retail regular grade gasoline will average $3.48 gallon this year, down a nickel from the 2011 average on lower refining margins. It expects the weekly average to run roughly a nickel higher than the annual average from April through September.
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 16 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.