By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices across the U.S. moved lower during the second full week of October, halting a march higher in gasoline costs that started in September. The decline in wholesale gasoline costs will pressure retail gasoline prices that have been moving sharply higher during a time of year when prices at the pump typically decline.
In fact, the Energy Information Administration (EIA), the statistical division of the Department of Energy, said the U.S. average price for regular grade gasoline sold at retail outlets surged to a $2.819 gallon five-month high as of Oct. 11.
Gasoline demand declines in September as the summer driving season concludes. Typically you see a pickup in miles driven on US roadways in October compared with September before again declining in November. Still, gasoline prices usually slide from summer highs during October, occasionally moving higher with unexpected refinery downtime during the period which includes a number of scheduled maintenance outages at U.S. refineries.
View DTN’s Weekly and Historical Gasoline Price Index.
Currently, refineries are operating at an efficiency rating below the five-year average but higher than a year ago at this time.
The recent price run-up did find support from the Chicago market, with gasoline production at ExxonMobil’s Joliet refinery in Illinois, impaired by a fire, lifting wholesale costs for the Windy City. The refinery is back at planned operating rates however, and wholesale prices in the Chicago market were heavily pressured late last week with the return of the plant’s output.
The catalyst for the late September through early October advance in crude oil and gasoline prices was a weaker U.S. dollar, with the greenback heavily pressured since late in the third quarter on widely held expectations that the Federal Reserve will print more money to buy assets such as U.S. Treasuries.
In what is called quantitative easing, the central bank is looking to stimulate investment now by weakening long-term interest rates that in turn depreciates the value of the dollar. This anticipation has prompted rallies in equities and commodities, as investors look to avoid deflation in the dollars they hold by acquiring hard assets or company stock.
The U.S. dollar has tumbled to a 10-month low against the euro.
The market will likely not know for certain what action the Fed will take until its two-day meeting ending Nov. 3, allowing the oil market to bubble higher until then. Should the central bank’s plans include no or less intervention than expected, we could see a steep sell-off in oil and a higher U.S. dollar.
On Oct. 13, the EIA released its monthly outlook on the oil and fuel markets, revising higher its projection for gasoline prices. Analysts with the administration now expect regular-grade retail gasoline prices will average $2.74 gallon this year, which compares with a $2.39 gallon average for 2009. The key driver for the higher estimate is a stronger price for crude oil.
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.