By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Retail gasoline continues to defy traditional seasonal price patterns, with the U.S. average for regular grade holding at a 27-month high above $3 gallon at $3.052 gallon, and poised to still inch higher. Usually you see retail gasoline prices nearing their calendar lows this time of year on reduced demand during the winter-weather months.
Preliminary data from the Energy Information Administration (EIA), the statistical arm of the Department of Energy, show gasoline demand increased 0.5% last year over the 2009 rate, with the consumption rate accelerating against the year prior period late in the fourth quarter. The U.S. average was last shown 44.5 cents or 17% higher in the EIA’s last report for 2010 compared with the same week in 2009.
On the last trading day of 2010, spot prices for several gasoline and diesel grades traded at an annual high, which will continue to lift the retail average. The spot market is the wholesale price in front of the terminal, where trades are done in bulk for delivery on the U.S. network of pipelines or for delivery on cargo ships or barges.
Meanwhile, wholesale fuel averages at major metropolitan city terminals were higher in near consistency across the country through the week ended Monday (1/3), erasing what would have been a decline before the year-end rally in prices on Friday (12/31).
The market is due for a price pullback, so we should see the recent price increases be arrested and leak lower. However, a widespread selloff is not expected, owing to a bullish market psychology. In short, many in the market are speculating that oil supply will tighten this year amid increased demand, namely from emerging economies in Asia, but also from greater demand domestically. In fact, several analysts have noted the unexpected surge in oil demand in the U.S. in late 2010, anticipating a higher consumption rate to extend into 2011 and beyond as the economy shifts into growth phase.
The U.S. crude oil benchmark, West Texas Intermediate, crossed above $92 barrel in ending 2010, and is holding at that level in early 2011. Goldman Sachs is forecasting WTI to average $100 barrel this year, with a number of other analysts also pointing to price gains above $100 barrel. That will lead to higher costs for making gasoline while also pushing up gasoline prices amid spread trades with crude oil. In other words, we could see retail gasoline prices reaching $4 gallon should the current bullish optimism continue into the summer months.
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 15 years as an analyst, journalist and editor. He can be reached at firstname.lastname@example.org.