Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices were mostly lower in major metropolitan markets across the United States for the week-ended Aug. 23, auguring for another weekly decline in the national gasoline average. The Energy Information Administration last reported a 3.8 cents decline in the average price for all formulations of regular grade gasoline to $2.745 per gallon.
There were some notable exceptions, with the Denver and Las Vegas markets posting sizeable increases in their wholesale costs amid a tighter supply-demand balance locally. Additionally, ethanol prices have been on the rise late this summer due to exports, with some parts of the country, including the West Coast experiencing tight supply that has helped to inflate some near-term costs.
Ethanol is included in virtually all reformulated gasoline in the country, with RFG having a more stringent environmental specification and its use required in more heavily populated parts of the country that fail in meeting the Clean Air Act standard. And due to federal mandate, ethanol is now included in most conventional gasoline around the country.
Ethanol trades at a discount to gasoline, but that discount has narrowed significantly this summer on increasing demand for exports to Europe. Fires in Russia have destroyed acres of crops that have prompted Moscow to ban wheat exports, which is sometimes used as a feedstock in Europe to produce ethanol. In the U.S., corn is the primary feedstock for ethanol.
Nonetheless, the long-term and seasonal trends for wholesale gasoline prices are down. Technically, the gasoline futures market is poised for a breakdown.
The oil market has followed broad-based indicators on the performance of the US economy and the recovery following recession, which has been wildly mixed this summer. In late August, it has mostly been bearish. It’s unclear how long this relationship will continue. There’s a greater focus on oil market drivers such as supply-demand now, which are bearish too.
To this point, the American Petroleum Institute, the trade group for the oil and gas industries, said on Aug. 20 that their data shows that gasoline demand in July was slightly lower, down 0.3%, from the previous year while marking the lowest gasoline consumption rate for a July since 2003.
“With unemployment high and July regular gasoline prices more than 20 cents a gallon above those a year ago, consumers likely have been shopping and vacationing less and trimmed their gasoline purchases accordingly,” API Chief Economist John Felmy.
The Labor Department’s Bureau of Labor Statistics said the national unemployment rate was 9.5% in July. Meanwhile, the Commerce Department’s Bureau of Economic Analysis estimated second quarter Gross Domestic Product growth for the U.S. at 2.4%, down from the 3.7% expansion rate for the first quarter.
Higher driving demand for the Labor Day holiday weekend is unlikely to derail an expected slide in gasoline prices into September.
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 firstname.lastname@example.org.