By Brian L. Milne, Refined Fuels Editor for DTN
Retail gasoline prices in the Midwest are jumping in several regional locales, while making smaller advances in most metropolitan markets across the U.S. as wholesale prices climb. Local markets along the West Coast are the exception, with a slight dip in wholesale prices likely holding pump prices flat early in the week.
A transition to summer-blend gasoline bolstered wholesale prices in the Chicago and nearby markets. Summer-specified gasoline has a lower evaporation rate in warmer weather, designed to reduce the release of harmful emissions into the atmosphere.
The transition to summer blends is occurring across the country, but the jump in price is amplified in the Midwest wholesale markets because it follows sharp discounts to drain winter gasoline levels.
Estimates vary, but winter-grade gasoline costs roughly 5-15 cents per gallon less to manufacture than summer fuels, which is one reason why gasoline prices typically move higher during the run-up to summer. In the Chicago and neighboring wholesale market, winter-grade gasoline inventory was at surplus levels heading towards the transition to the summer formula.
Suppliers do not want to hold onto gasoline they cannot use for several months, so slashed offers to clear out inventory. Now we’re seeing wholesale prices advance after the sharp discounting which is pronouncing the increase in retail gasoline values for the region.
Midway through March, and the U.S. retail regular grade gasoline average, last pegged at $1.934 gallon, remains positioned to climb over $2 gallon by the end of the month.
Gasoline demand remains above levels in early 2008, however, the consumption rate is slipping a bit, which is what you would expect when unemployment increases. Analysts will continue to monitor gasoline consumption and the unemployment rate, at 8.1% at the end of February, for clues on future price direction.
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 firstname.lastname@example.org.