Wholesale Gasoline Costs Climbing on RVP Switch, Iranian Export Decline

By Brian L. Milne, Refined Fuels Editor, Telvent DTN

Retail gasoline prices, with regular grade averaging at a 10-month high of $3.867 gallon nationally per the Energy Information Administration’s (EIA) latest weekly release, is set to continue higher, with several analysts projecting a $4.10 to $4.15 gallon average before a retreat in pump prices.

Throughout early 2012, oil and gasoline prices have been driven higher by worry over lost supply from OPEC member Iran due to efforts by Western nations to rein in Tehran’s nuclear program, which it believes is an effort to secure nuclear weapons. Iran denies those charges.

Also pushing oil and gasoline prices up has been optimism for the U.S. economy and easing worry over Europe’s economy, which had at one point been seen as a catalyst in sinking the global economy into recession because of excessive debt held by several countries highlighted by Greece. Greece, albeit through a heavy-handed maneuver, was able to eliminate $100 billion of its debt through a restructuring effort with private bondholders that also won Athens more bailout funding.

The rescue funds allowed the country to avoid defaulting on debt due on March 20, and helped to ease worry that the continent was headed for another deep recession. Although the European Union remains economically vulnerable due to this debt and lack of economic growth, there is less worry that it will draw the United States into the morass.

Oil prices were looking ready to bend down pressured by worry that high oil prices would cut into demand and potentially trigger an economic slowdown. Oil prices were also moving lower on an increasing expectation that several governments, the U.S., Great Britain, and France, along with other members of the International Energy Agency, which total 28, would release oil from emergency stocks to pressure prices. IEA’s executive director, Maria van der Hoeven, dismissed those claims.

Emergency oil reserves are meant to only be used during a time when supply is disrupted, and not to only reduce oil prices.

The decline was reversed on news that Iranian oil exports for March will be down 300,000 barrels per day (bpd), seeming to testify to the increasing effect of U.S. sanctions and preparations for when EU’s ban on Iranian oil takes effect on July 1. The market spiked on the report, with the gasoline futures contract, RBOB, posting a nearly 11-month high.

Seasonally, gasoline prices move higher as the industry transitions to lower Reid vapor pressure gasoline, which is more costly to produce. Several bulk wholesale markets are moving to the summer grade now, lifting wholesale gasoline costs.

View Telvent DTN’s Weekly and Historical Gasoline Price Index.

In short, the drivers pushing retail gasoline prices higher remain intact. Absent a sudden reversal, a $4 gallon U.S. average for regular grade gasoline is close at hand.

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 brian.milne@telventdtn.com.

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