Fuel Rising Fast

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

The average price for regular grade gasoline sold at retail outlets across the United States is poised to climb to a 15-month high early this week when government pricing data is released, with the Jan. 4 average reported at a $2.665 gallon two-month high. A 3-cent gain would push the average to its highest point since Oct. 20, 2008 when retail regular grade gasoline averaged $2.914 gallon.

Gasoline prices are nearly $1 gallon higher than they were a year ago at this time.

Driving retail gasoline prices higher is a view that global demand for crude oil will grow in 2010 after slumping in the past two years, while a recovering US economy is seen adding to demand for diesel fuel and gasoline.

Geopolitical concern has also returned to the oil market, with a hard-line Iranian government, increasingly under pressure from a revolting citizenship, has become more bombastic and is seen as a threat to Saudi Arabian oil supply routes. The US dollar is also weakening, which makes oil more expensive for US buyers. Lastly, brutally cold weather across much of the nation sparked increased demand for winter fuels such as heating oil, natural gas and propane that has pushed up the oil market.

Crude oil is again holding above $80 barrel, while financially traded gasoline through the New York Mercantile Exchange RBOB futures contract spiked to a 15-month high. However, the advance is driven by speculation on what might happen to affect oil and gasoline supply and demand despite an inventory surplus, idled production capacity and a tepid consumption rate. Indeed, gasoline demand is the weakest in January and February.

Moreover, financially traded gasoline usually slumps to an annual low between December and February. This season looks to be an exception.

In reviewing trading records, the Commodity Futures Trading Commission shows the price run-up in gasoline occurred while noncommercial accounts, also known as speculators that include large investment houses and banks that don’t buy and sell the actual physical gasoline product, are positioned for higher prices in what is referred to as a long position. In fact, this grouping of market participants are at an all-time net-long position, confirming that the rally in oil prices has been driven by new inflows of investment dollars to start the New Year.

View DTN’s Weekly and Historical Gas Prices.

“Gasoline prices have now gained 34 cents a gallon over the course of the last month, and that adds a direct cost or tax to consumers of $136 million a day more than they were paying one month ago. That is nearly a billion dollars a week more on gasoline,” writes Peter Beutel, president of Cameron Hanover, an energy risk management firm in New Canaan, Connecticut, in a note to clients.

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 more than 14 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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