Brian L. Milne, Refined Fuels Editor, Telvent DTN
Pricing data from the federal government shows retail gasoline prices were averaging just 4 cents below May’s 18-month high in early November, a time of year when gasoline prices are usually under downward pressure. Wholesale gasoline costs for the week-ended today (11/15) were mixed, likely arresting an immediate hike in the retail average, but the price trend remains pointed up.
According to the Energy Information Administration, the statistical division of the Department of Energy, US regular grade gasoline averaged $2.865 gallon on Nov. 8 compared to the $2.905 gallon May 10 high.
“Every penny at the pump is equivalent to a $4 million tax per penny per day, or a $1.46 billion tax over a full year. The 24-cent increase in wholesale gasoline prices since June 7th is equivalent to a $96 million a day tax increase–or $35 billion per year,” said Peter Beutel, president and founder of fuel risk advisory firm Cameron Hanover in New Canaan, Ct., in a note to clients.
Traditionally we see higher gasoline prices in May as the market bids up value in anticipation of greater gasoline demand during the summer driving months. Historically, driving demand declines in November. However, the current price push is not demand driven, although there continues to be supply tightness in the New York and Boston regions, and there have been sporadic supply issues in the Chicago market recently, although they do appear to have eased in the Windy City.
In the N.Y. and Boston markets, wholesale gasoline costs are up sharply on lower imports, with the N.Y. and Boston regions historically dependent on imports to meet their supply needs. The root causes to the region’s tightness have been the strikes at refineries and ports in France in October and prolonged seasonal maintenance in Canada.
A seasonal maintenance turnaround at a key gasoline producing refinery in New Jersey during October also triggered supply draw downs, with available product for the two metropolitan markets sharply reduced as a result of the confluence of these events. Supply rebuilding will be gradual for the region.
Most U.S. wholesale gasoline costs eased on Friday (11/12) on worry that Beijing might raise interest rates to slow China’s explosive growth following data showing a jump in inflation in October to a more than two-year high. That speculation triggered heavy selling in commodities and equities.
The gasoline price ascent was also slowed by a rise in the US dollar to a 2-1/2 week high, with dollar weakness the key impetus for higher fuel prices. The dollar rebounded from an 11-month low versus the euro in early November following the Federal Reserve’s asset buying announcement, which is akin to increasing the money supply. This action weakens the dollar’s value. However, debt concerns in Europe have remerged, namely in Ireland that have slowed the greenback’s weakness. Still, the dollar is expected to return to its weaker downtrend that would, in turn, support higher gasoline prices. Bluntly, this is called inflation that is purposely being engineered by the Fed in an effort to spur greater employment.
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.