Wholesale Gasoline Prices under Pressure Amid RVP Transition

By Brian L. Milne, Energy Editor, Schneider Electric

Enmark5Wholesale gasoline costs moved mostly lower during the second week of September, pressured since Labor Day, with the holiday signaling the end of the driving season when demand eases from summer highs.

The decline came despite curious rhetoric over the Syrian crisis, and later in the week with diminished expectations the U.S would bomb the Middle East nation for its use of outlawed poisonous gas that pressed New York Mercantile Exchange WTI crude futures more than $2 a barrel lower from a $110.53 barrel 28-month settlement high on the spot continuation chart Sept. 6.

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

The industry was focused on the mid-September transition to higher Reid vapor pressure (RVP) gasoline, which is less costly to produce then the lower RVP summer blend. Gasoline prices in the spot market have mostly declined sharply with the specification adjustment.

And on cue, preliminary data showed gasoline demand tumbled immediately following Labor Day, sinking to a four-month low and to its lowest point since before Memorial Day, the unofficial kickoff to the summer driving season. Data from the Energy Information Administration (EIA) showed gasoline supplied to market tumbling 489,000 barrels per day (bpd) or 5.4% to 8.605 million bpd during the week-ended Sept. 6.

The size of the decline might have been amplified by suppliers positioning product closer to retail ahead of the holiday that wasn’t used—beefing up the demand figure during the last week of August, as well as efforts to reduce storage tank holdings to make way for the RVP transition.

In gasoline futures trading, the NYMEX Reformulated Blendstock for Oxygenate Blending nearby delivery contract tumbled to a 2-1/2 month low Sept. 11 at $2.7078 gallon. The previous low was plumbed July 1, just ahead of the military coup in Egypt July 3 that rallied prices.

The lower wholesale costs are making their way through the supply chain, with the EIA’s US retail gasoline average slipping 2.1 cents to $3.587 gallon for the week-ended Sept. 9. The decline would have been larger if not for a price jump along the West Coast, where the average for California surged 7.7 cents to $3.899 gallon.

Ahead of September, drivers in California experienced lower than usual prices for the state in comparison with the rest of the country. However, a string of unit upsets at refineries in the state early September spiked values, with higher retail costs to bleed into the second half of the month.

Gasoline in the Los Angeles and San Francisco spot markets spiked to two-month highs Sept. 12 on news of yet another processing interruption. However, a day later they were moving down sharply on returning capacity.

Higher crude prices in August due to a string of global supply disruptions, namely from Libya, prompted the EIA to revise higher by 3cts its forecast for the US retail gasoline price average to $3.55 gallon, and adjusted the average 6cts higher for next year to $3.43 gallon. Still, the trend is pointed down based on growing world oil supply, namely from North America, with the average at $3.63 gallon for 2012.

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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