Gasoline at $3 Gallon for the Holidays

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

Wholesale gasoline prices were mixed in metropolitan markets across the U.S. for the week ending Monday (12/20), easing along the West Coast while advancing along the East Coast and in Midwest markets. The weekly price changes were limited however, likely keeping the US average for regular grade retail gasoline near the $3 gallon one-time psychological price barrier.

Gasoline supply held in the East Coast and Midwest markets are below year-ago levels, with the East Coast also holding less inventory than two years ago. Tight supply in the Northeast had been a key catalyst in gasoline’s price run higher during the fourth quarter, although market conditions have since improved.

Data shows that speculation has been a key driver in pushing oil and gasoline prices higher late in 2010, initially supported by a weaker U.S. dollar amid a growing U.S. deficit, deepening with the Federal Reserve’s $600 billion bond buying program aimed at stimulating business activity. Investors bought commodities to hold value amid the weakening currency.

Of late however, it’s been increasing optimism that the U.S. economy is again on track to grow that has pushed oil prices higher, with expanding economies using more energy. Oil demand is also growing globally, led by China, India, and the Middle East. Demand is increasing in South America, too.

Although higher gasoline prices act like a tax on the American consumer, there are signs that the consumer can handle a higher price point. Indeed, the American Petroleum Institute said Friday (12/17) that gasoline supplied to the market increased 3.2% in November compared with November 2009.

Demand Spike
Meanwhile, a surge in gasoline demand in early December pushed the four-week average through Dec. 10 to a 0.6% increase over the comparable year-ago period from a 0.7% decline during the preceding four-week period, according to the Energy Information Administration (EIA).

Year-to-date, EIA’s preliminary data shows gasoline demand up a meager 0.4% compared with the same timeline in 2009.

Higher gasoline prices aren’t playing the part of Scrooge this holiday season based on travel expectations from the Automobile Association of America. AAA expects a 3.1% increase against year prior in those traveling 50 miles or more from home during the Christmas-New Year period, which is defined from Dec. 23 to Jan. 2, 2011. Roughly 85.7 million people or 93 percent of all holiday travelers will drive to their year-end holiday destinations, up 3.2% from the 83 million who drove last year, according to the association.

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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