Fuel Trending Upward

By Brian Milne, Refined Fuels Editor, DTN

After making a U-turn and moving down more than a nickel in late February, the U.S. average price for regular grade gasoline at retail outlets will again increase, pushed up by sharp gains in the wholesale market.

The wholesale markets remain extremely volatile, and we could see wholesale prices reverse lower as we move through early March, but there’s a strong likelihood that the U.S. average price for retail gasoline will climb above $2 gallon later this month.

The U.S. average retail price for gasoline was last determined to be $1.91 per gallon by the Energy Information Administration (EIA), which is the statistical arm of the Department of Energy.

A key factor in driving gasoline prices higher has been increased demand. During the four-week period ended Feb. 20, the EIA estimated gasoline demand to be 1.7 percent higher than during the same timeframe in 2008.

View DTN’s Weekly and Historical Gas Prices

The higher demand is also coming as refiners shut operating units for seasonal maintenance programs which reduces the amount of production, while imports have remained sluggish.

This combination has sparked a decline in the nation’s stockpiles of gasoline, while market participants bid the price higher as the supply-demand balance tightened.

Refinery Problems
There were a few unexpected problems at refineries in California, Delaware, Texas, and Illinois, to help spur the price higher, while workers at two refineries in Pennsylvania, owned and operated by Sunoco, are considering a strike action.

An unexpected outage at an ExxonMobil refinery in Joliet, Ill., in late February had a big impact on wholesale prices in the regional market it serves, which was reflected in sharply higher costs for gasoline in Chicago. Drivers there should expect their pump prices to extend higher near term.

Longer-term, it is a bit puzzling why demand for gasoline is increasing despite a rising unemployment rate. Historically, the more people unemployed the less gasoline is consumed because of reduced travel to and from work. There has consistently been evidence, too, that decreasing gasoline prices spur greater demand for the fuel.

What will be important for industry watchers is to see where equilibrium is found; the point in which lower gasoline prices fail to drive a higher consumption rate by cash-strapped Americans.

About the author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at brian.milne@dtn.com.

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