By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Retail gasoline prices continue to advance, with the Energy Information Administration’s (EIA) U.S. average for regular grade surging 7.2 cents to a $3.793 gallon nine-month high as of March 5, with further gains to again hike the average when next released.
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Wholesale gasoline prices moved higher through most major metropolitan markets, with prices up sharply in the Midwest and Gulf Coast trading regions as the industry transitions to summer grade fuel specifications that require a lower Reid vapor pressure reading. RVPs measure the release of volatile organic compound emissions, with warmer weather increasing VOC emissions. Summer gasoline fuel specifications are more costly to produce.
Gasoline prices along the West Coast witnessed smaller gains in their wholesale prices, which are coming under pressure from returning units following a series of refinery outages amid seasonal turnaround activity and unexpected shutdowns that had pushed asking prices sharply higher.
The futures markets continues to drive the advance in gasoline prices with the nearby delivery contract for New York Mercantile Exchange RBOB (Reformulated blendstock for Oxygenate Blending) climbing more than 6.0 cents during the week ended March 9. The NYMEX crude contract increased 70 cents in value during the same week, with both contracts lower early Monday (3/12).
The futures market is under pressure from weak data regarding China’s economy that the market currently believes would reduce their oil consumption. China is the world’s second largest consumer of oil, and their annual increases in global oil demand have led to a higher world consumption rate for oil over the last several years. Meanwhile, oil demand in the U.S. remains weak.
There are also concerns that despite a series of data showing an improving U.S. economy, high gasoline prices could derail the recovery. This has also prompted selling pressure, as a weaker economy uses less energy.
Trade sources do caution however, that the downside will likely be limited by concern over supply disruptions in the Middle East and in Africa highlighted by the war of words and sanctions between Iran and Western nations over Iran’s pursuit of nuclear capabilities. There are also supply disruptions in South Sudan, Syria and Yemen.
Gasoline prices have rallied from winter to the spring every year for the past 30 years in what is known as the preseason rally. Prices move higher amid the change in fuel specifications and on expectations of increased demand during the summer months.
On March 1, the NYMEX RBOB contract rallied to a $3.3868 gallon nearly 10-month high on its spot continuation chart. If that high holds, it would be the earliest peak for a gasoline futures contract during the preseason rally period. So, there’s a strong seasonal tendency that the contract could extend even higher, adding to climbing retail prices for gasoline. The EIA, based on their assessment of NYMEX RBOB futures and options, gave a 39% chance for June’s US retail gasoline average to reach $4 gallon.
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 email@example.com.