Brian L. Milne, Energy Editor, Schneider Electric
Most major metropolitan markets in the U.S. experienced a decline in wholesale gasoline costs coming into the second full week of 2013, which should cap and upside push by retail gasoline prices that have edged higher since registering the low for 2012 in mid-December.
Wholesale gasoline costs, the prices posted by suppliers at distribution terminals, were mixed overall, but the bias was pointed down, with costs along the East and Gulf coasts down the most. That should snap a three-week advance by the U.S. average for regular grade gasoline sold at retail outlets across the country, and tallied by the Energy Information Administration (EIA). Since Dec. 17, when the average fell to $3.254 gallon, it has ascended to $3.299 gallon as of Jan. 7.
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The decline in wholesale costs comes alongside the seventh successive weekly increase in national gasoline supply, which has increased the inventory level 32.7 million bbl or 16.3% since the middle of November 2012. As of Jan. 4, U.S. gasoline supply totaled 233.1 million barrels, 9.3 million barrels or 4.2% above the year-ago inventory level, and 14.9 million barrels or 6.8% above the five-year average.
The sharp supply rebuilding, which followed a four-year low in supply plumbed in early fourth quarter 2012, came with weak gasoline demand, which was a continuous trend last year. Implied demand data from the EIA indicate gasoline demand averaged 8.642 million barrels per day (bpd) in 2012, 478,000 bpd or 5.2% lower than the five-year average. For the week-ended Jan. 4, gasoline demand was 8.01 million bpd, a one-year low.
In its most recent Short-term Energy Outlook, EIA said it expects the average retail price for regular grade gasoline to be 20cts lower this year than in 2012 when it averaged $3.63 gallon. The forecast is predicated on a drop in crude oil prices this year, as US domestic production continues to climb amid the boon in new supply unearthed by hydraulic fracturing.
In 2012, gasoline prices reached record highs despite weak demand. EIA said, “Many factors contributed to retail gasoline price movements, including crude oil price changes, refinery outages, grade specification changes, and other changes in gasoline supply and demand.”
Last year, there were a host of refinery outages, including at key refineries for certain regional markets that had an outsized effect on market pricing, and translated into higher street prices. Barring a repeat in refining disruptions of the same magnitude, U.S. consumers should see a bit of a break in their wallets this year, albeit likely not enough to offset the 2% increase in the payroll tax that took effect this month.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.