Winter Chill Fails to Freeze Climbing Gasoline Prices

Brian L. Milne, Refined Fuels Editor, Telvent DTN

The upside push in gasoline prices seems unrelenting, with federal data showing the US average for regular grade climbing to $3.07 gallon as of Jan. 3, a 27-month high. Wholesale gasoline costs since Jan. 3 were mostly down in major metropolitan markets, higher in the Pacific Northwest following a temporary shutdown of a Washington State refinery due to a power outage. Otherwise, slipping wholesale costs augur for the US gasoline average, which has increased consistently since the end of November, to ease this week.

Since Nov. 29, 2010, the US retail gasoline average has increased 21.4 cents or 7.5%, according to data from the Energy Information Administration (EIA), the statistical arm of the Department of Energy.

Arresting the increase might prove elusive near term however, with regional spot market gasoline prices climbing sharply in opening the year’s second week of trading, pulled higher by a rallying futures market. City prices are typically driven by price moves in the broader regional spot market, where transactions are conducted for supply from refineries and imports to local wholesale terminals.

Early Monday (1/10), the New York Mercantile Exchange oil futures market reversed a selloff from Jan. 7, and was charging higher on news that a pipeline leak on the Trans Alaska Pipeline on Jan. 8 forced its shutdown, while curtailing 95% of the oil production from the Alaskan North Slope in Prudhoe Bay.

In December, oil flow through the affected pipeline averaged 642,261 barrels per day, (bpd) accounting for 11.5% of total U.S. crude oil production, 5.594 million bpd, that month.

As of this writing, crude oil continues to be loaded on tankers at Valdez, the endpoint for the 800-mile pipeline, with supply pulled from storage. The leak appears to be contained while engineers are working on a bypass to restart the pipeline.

A quick restart of pipeline flows would reverse the buying; likely resuming the recent selloff on worry that fuel prices might have run too high too quickly.

However, an extended outage would return crude prices back over $90 a barrel, pulling gasoline wholesale costs higher in kind. Gasoline prices along the West Coast would likely endure the greatest impact, since refineries along the Pacific Coast heavily source crude from Alaska.

Retailers should monitor the event, which would allow for a tangible response to customer concerns on what seems to be an ever increasing price at the pump during a time of year when retail prices are typically plumbing annual lows.

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 brian.milne@telventdtn.com.

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