By Brian L. Milne, Refined Fuels Editor for Telvent DTN
Retail gasoline prices will be mixed across the country’s major metropolitan markets during the week leading up to a late Labor Day, with the holiday weekend the traditional conclusion to the summer driving season.
After Labor Day, expectations call for a typical decline in gasoline prices as demand eases after summer travel ends, and refiners shift to making winter-blend gasoline, which is less costly to manufacture than summer grades.
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Overall, wholesale gasoline prices were mixed in most major metropolitan areas, while lower wholesale costs in some markets were reduced by a late August rally in the financially traded gasoline market called futures, countering ample inventory levels in the majority of regional markets that trade in physical supply.
New York Blues
An exception was in the New York market, with reports indicating that a feedstock ingredient used in making the reformulated gasoline blend required for much of the region was in tight supply.
The U.S. has multiple specifications for gasoline depending on regional pollution levels and evaporation rates due to hot weather that are designed to mitigate the impact of harmful emissions into the atmosphere.
Much of the New York market, which includes New Jersey and Connecticut and impacts the Boston market are required to use a RFG-formulated gasoline. As a result, tight feedstock supply in New York has had a ripple effect, pushing wholesale gasoline prices higher in these markets.
Additionally, in futures trade, the contracts traded have an underlying delivery location even though the vast majority of these contracts are settled financially. The underlying delivery location for the gasoline futures contract known as the Reformulated Blendstock for Oxygenate Blending is the wide New York Harbor market, which includes the port in Linden, N.J. This relationship, tied together with an impending contract expiration deadline, worked to rally the contract by 3.3% during the final full week of August.
The tight blendstock market is a short-term event. As the move from summer-blend to winter-blend gasoline advances later in September, gasoline prices will pivot lower. Still critical to gasoline prices going forward will be crude values, with crude the primary cost component in each gallon of gasoline.
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 firstname.lastname@example.org.