Gasoline Prices Retreat from Fresh Highs

Brian L. Milne, Refined Fuels Editor, Telvent DTN

Wholesale gasoline values are easing from an 18-month high while the national average for retail gasoline prices started April at a 17-month high, prompting some in the industry to quip, “It’s déjà vu all over again,” borrowing a line from legendary baseball star Yogi Bera.

Widely discussed, gasoline prices increase during the spring amid changes in the fuel’s manufacturing specifications, seasonal maintenance at oil refineries, and expectation that demand will increase as driving peaks during the summer months. However, there is no shortage of gasoline, so why the price charge to fresh highs?

The quick response is expectations for a continued US economic recovery that is projected to drive demand for fuels like gasoline and diesel much higher. And this opinion has filtered into the investment side of the oil markets, with money managers increasing their positions in energy by 70% since December. That “paper” demand has overrun weak consumption data for gasoline, underpinning the rally in the oil markets, where the US crude benchmark neared $90 a barrel.

The increase in gasoline costs is taxing on consumers.

“Americans spent $10.731 billion more on gasoline in March, 2010 than in March, 2009, after spending $20.218 billion more on gasoline in January and February, 2010 than they did in 2009. That makes the running total $30.949 billion more so far in 2010,” according to Peter Beutel, author and president of Cameron Hanover in New Canaan, Conn., a firm that offers risk management services for fuel wholesalers.

View DTN’s Weekly and Historical Gas Prices.

After rallying to fresh highs in early April, the markets pulled back. While this might mean that the market ran ahead of itself and will seek lower prices in response, a price pullback is a common feature in markets that rally to new highs before the higher prices are later reasserted.

Wholesale gasoline costs have moved lower across the country’s major metropolitan markets through today, which should pressure pump prices at local retail outlets. However, the trend now is for prices to continue moving higher during the next month or more.

Currently, the US average price for regular grade retail gasoline is $2.826, just shy of the government’s expectation that retail gasoline prices will end 2010 with a $2.84 per-gallon average. In 2009, the average was $2.35 per gallon. In making this forecast earlier in April, the Energy Information Administration, the statistical arm of the Department of Energy, said that it expects retail gasoline prices to crest over $3 per gallon in a number of markets this spring and summer, noting that in some locations, consumers are already facing this reality at the pumps. 

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.

7ads6x98ycss.php