Pump Surge

By Brian L. Milne, Refined Fuels Editor, Telvent DTN

 

Wholesale gasoline costs moved higher for the week-ended Aug. 24, underpinned by a surge in crude oil prices on renewed enthusiasm for an economic recovery and a weakening U.S. dollar.

 

The higher wholesale costs will be passed through to the retail market, lifting prices at the pump in major metropolitan markets across the U.S.

 

West Texas Intermediate crude oil, which is the US benchmark crude and also trades as a financial instrument on the New York Mercantile Exchange, has rallied to a $74.81 barrel high for 2009 and the highest mark for the crude oil contract since Oct. 21, 2008. Crude prices have room to move higher, which translates into gains for gasoline since crude costs account for the majority of its price.

 

View DTN’s Weekly and Historical Gas Prices.

 

The tug-of-war between bearish fundamental factors and economic optimism continues, with bullish news on the US economy trumping fundamentals as we move into the final days of August. Driving this sentiment were positive words from Federal Reserve Chairman Ben Bernanke on Aug. 21, with the Fed chairman saying the U.S. economy is poised for growth in the near term. That comment dovetailed with upbeat housing data showing existing home sales rose by a more-than-expected 7.2% in July.

 

Demand Rising?

There are signs that demand is picking up for gasoline despite high unemployment, with the Federal Highway Administration showing that Americans drove 4.9 billion or 2% more miles in June than they did during the comparable period last year, the third consecutive month showing an annual increase in VMT.

 

The FHA, an agency within the U.S. Department of Transportation, reported that U.S. drivers traveled an estimated 256.7 billion miles in June. This total includes 89.6 billion vehicle miles on rural roads and 167.1 billion miles on urban roads and streets.

 

All regions of the country experienced higher VMT, with the greatest increase, 2.8%, in the South-Gulf. The smallest increase was in the Northeast at 0.8%.

 

The FHA data showed a consecutive 16-month decline in VMT from December 2007 to March.

 

While the recent rally in crude prices will support higher gasoline prices near term, historically, gasoline values decline in September following peak demand during the summer months. Also, the rally by crude oil futures remains tentative when considering high inventory levels and overall dampened demand.

 

 

About the Author

Brian L. Milne is the Refined Fuels Editor for Telvent 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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