Gasoline Futures Tumbles on Demand Destruction

Brian L. Milne, Refined Fuels Editor, Telvent DTN

A loss of gasoline demand in the heavily populated Northeast due to Hurricane Sandy pressed New York Mercantile Exchange RBOB futures to a 4-1/2 month low, with the contract, short for Reformulated Blendstock for Oxygenate Blending, used as a benchmark in setting spot gasoline prices.

Although long lines at gasoline stations in the New York metropolitan area akin to the early 1970s when an OPEC embargo forced rationing, the reality is that gasoline demand suffered as motorists caught in an extraordinarily large superstorm Sandy were forced off the roads.

In Sandy’s aftermath, state and local government bodies urged drivers to limit driving, citing danger from floods, fallen trees, utility poles and wires and out-of-service traffic lights, which continue in some parts as of this writing. Some towns have not yet been able to clear all their roadways, while others institute curfews.

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

The red gasoline can is in contention to become one of Sandy’s lingering memories in a region littered with catastrophe, used not only to fill vehicles that ran out of gasoline but also to pour fuel into an army of generators to keep the lights on during the darkness so many were left wandering in in the aftermath of Hurricane Sandy.

The Energy Information Administration (EIA) deployed an emergency survey on Nov. 2 seeking the number of gasoline stations in the New York metropolitan area selling gasoline, with the number climbing rapidly—from just 33% on Friday to 73% by Monday. The improving number reflects not only new supply reaching gasoline outlets, but also the restoration of electricity to allow the pumps to work.

Power Outages Persist
The refined fuel infrastructure in N.J., with the state’s northern east coast part of the New York Harbor, is a critical region in the supply chain. Ports, pipelines and terminals in the region that were forced to shut or curtail operations due to an advancing Sandy were mostly returned in quick order, but some facilities remain shut primarily on a loss of electricity to run operations.

Roughly 42% of the gasoline and diesel fuel consumed in the Northeast is from local refinery operations the EIA explains, while 31% is originated outside the region, namely in the Gulf Coast, and piped in or delivered by tanker. The balance of the region’s supply is from imports, especially gasoline.

The region’s fuel consumption averages roughly 2.2 million barrels per day (bpd). So far this year, preliminary EIA data pegs gasoline demand at 8.661 million bpd and distillate demand—both diesel and heating oil, at 3.636 million bpd.

The U.S. government on Nov. 2 waived the Jones Act, which requires ships moving from one US port to another to be US owned, operated, flagged and crewed, to more quickly replenish fuel supply to the Northeast. The Environmental Protection Agency has temporarily waived several fuel rules to aid emergency responders and to alleviate tight gasoline supplies, allowing any blend of gasoline to be used in 16 states and in Washington, DC.

While there is a supply crunch, Sandy is a net-negative for demand that should keep a lid on gasoline’s upside. Still, the ongoing supply disruptions will also limit the downside in retail gasoline prices.

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.

css.php