Fuel Prices Remain Volatile

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

Gasoline wholesale markets remain volatile, rallying one day while selling off the next as market participants react to a slew of data ranging from oil’s supply-demand fundamentals, the stock market, debt issues and currency trading to weekly and monthly updates that gauge the economic health of the U.S.

Traders nervously sit upon the razor’s edge, hitting the buy or sell switch as this new data flashes across their screen, displaying little conviction in either upside or downside price moves.

“While the week following Independence Day had been surprisingly upbeat, with crude up $3.95, this week just ended had everything but the kitchen sink thrown at it,” said Peter Beutel, president of risk advisory firm Cameron Hanover in a note to clients. “As we ended the week, market participants were trying to find the positives in a sea of negative economic indicators, with disappointing numbers from retail sales, housing, manufacturing and the Fed overwhelming a 29,000 decline in unemployment claims, which was the week’s bright spot.”

The result is sideways trading after the nearby delivery gasoline futures contract, referred to as the Reformulated Blendstock for Oxygenated Blending futures contract traded on the New York Mercantile Exchange slid to a 1-1/2 month low in early July. The contract bounced off the low and, since July 8 has traded above the psychologically significant $2 gallon mark, reaching a $2.10 gallon 3-week high midway through today’s (7/19) trading.

View DTN’s Weekly and Historical Fuel Price Index.

This activity in the financially traded gasoline market, which is used by commercial traders to hedge positions and noncommercial traders to speculate on price moves kept weekly changes in wholesale gasoline prices in most metropolitan markets limited in mid-July. This, in turn, will curb the price change at the street level, with the US average retail price for regular grade gasoline sliding to a one-month low at $2.718 gallon on July 12.

Looking ahead, gasoline prices will lose the support of speculators as the summer driving season wanes, cutting gasoline demand. However, higher crude prices would push up gasoline. Yet, a slowing economic recovery, which is increasingly expected for the second half of 2010, would thwart such an advance. Still, the oil market remains resilient. 

“Despite these factors, and abundant supplies, buyers are still ready to step up in oil markets,” said Beutel.

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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