Shaken Economy Cannot Stir Gasoline Demand

Brian L. Milne, Energy Editor, Schneider Electric

For six straight weeks, the Energy Information Administration’s (EIA) retail gasoline price average has declined, down 17.6 cents or 4.7% from Feb. 25 when it reached $3.784 gallon, which is currently the high for 2013. Considering sharp selling activity during the second week of April, the February high could endure for the remainder of the second quarter.

gasoline editFor yet another season, suggestions of early year strength for greater gasoline demand enticed by positive economic signals fades in the second quarter, pressuring prices. Gasoline prices are also dropping back from speculative driven highs that gin up the market early in the year and well ahead of the switch to more expensive summer grade gasoline. Akin to a sugar high, the early year surge in gasoline prices prompts a far more substantial decline as a result, creating unwanted volatility for those in the business of deciding when to lift product, set street prices, let alone the business’ financial planner seeking authority in forward pricing forecasts.

On April 12, the New York Mercantile Exchange nearby delivery (May) RBOB gasoline futures contract tumbled to a $2.7643 gallon three-month low, down 50.3 cents or 15.4% from March 11 when the contract rallied to a nearly six-month high. That certainly implies further downside for retail gasoline prices in the coming weeks.

View Schneider Electric’s Weekly and Historical Fuel Price Index.

April has been unkind for those bullish on the US economy in the short term, with manufacturing slowing, job creation suddenly turning sluggish while the labor participation rate fell to its lowest point since 1979. On April 12, the Commerce Department added to the worries, showing retail sales down 0.4% in March, with a 2.2% drop in gasoline sales for the month the key catalyst. And consumers aren’t in a great mood, with the Thomson Reuters/University of Michigan consumer sentiment for April plunging from 78.6 to a 72.3 reading while economists surveyed by Bloomberg expected no change.

Noncommercial market participants, known as speculators since they are not hedging an underlying physical position in the market, are liquidating long positions data from the Commodity Futures Trading Commission shows, with a long position one in which the holder expects prices to increase. After peaking in early February at a 10-month high, they have moved to their smallest net-long position of 2013 through the week-ended April 9, down 27.3% from February. Based on sharp selling since April 9, one would expect the net-long position to have declined further.

Could 2013 be the year with the earliest price peak for gasoline in the preseason rally ahead of summer in recent years?

For 2012, the EIA’s US retail gasoline average peaked on April 2 at $3.941 gallon and on May 9 at $3.965 gallon in 2011. For 2010, the high was reached on May 10 at $2.905 gallon, while it took to June 22 in 2009 at $2.691 gallon, just as the nation was about to escape the Great Recession. For 2008, it was on July 7 at the record high of $4.114 gallon, although speculative trading in commodities had run amok at that time. In 2007, the year gasoline demand was the highest the national retail average set its high on May 21 at $3.218 gallon.

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 brian.milne@telventdtn.com.

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