Gasoline Prices Surge as Libya Violence Escalates

Wholesale gasoline prices surged following Presidents’ Day, as violence in Libya escalated, with street prices marching higher on the tsunami wave of climbing oil costs across the globe. Worse, the full pass through costs from wholesale to retail have not worked their way through the supply chain, meaning retail prices will continue to climb in early March.

Surging gasoline prices are being driven despite surplus domestic supply of crude, gasoline and diesel fuel. Total oil demand in the United States through Feb. 18 is up 2% compared with the same period in 2010, based on preliminary data from the Energy Information Administration. Gasoline demand, included in that total, is up 0.4% for the same period.

Driving the gains has been speculation on how antigovernment revolts in several North African and Middle Eastern nations might impact global oil supply, while violence in Libya has cut the country’s oil production. Light sweet crude oil futures traded on the New York Mercantile Exchange spiked above $100 barrel to a $103.41 barrel nearly 29-month high on Feb. 24, while Brent crude, the European benchmark, spiked to $119.79 barrel, as opposition forces in Libya battled Muammar Gaddafi loyalists.

Libya is major oil exporter and a member of the Organization of the Petroleum Exporting Countries.

The oil markets sold off after touching those highs after Saudi Arabia said it would increase its production to offset the loss of Libya supply, which it has, while the International Energy Agency said there was plenty of available oil and emergency reserves would be released should major disruptions occur.

The U.S. is one of more than a dozen countries that are a member of the IEA holding emergency oil reserves that can be called on for release in the event of supply disruptions. It was this very apparatus that was used in the aftermath of Hurricane Katrina in 2005, in which countries sent supply to the U.S. while the U.S. government released crude stocks from the Strategic Petroleum Reserve to make up for the supply disruption caused by that massive Category 5 storm.

In Libya, opposition forces have taken control of much of the country and established a provisional government, while the Wall Street Journal reported an oil export cargo was set to sail on Sunday (2/27), which would be the first since fighting erupted in that country.

“The oil market is trying to regain calm. We see the market settling just a bit and we are relieved that unrest has not spread across the region over the weekend. Still this is a very dangerous situation and the market could turn back around and fly on a dime,” said Phil Flynn, Chicago-based broker and vice president for research with PFG Best Research.

While market worries have eased, these events have dramatically increased the likelihood for the U.S. regular grade gasoline average tracked by the EIA to top $4 gallon this year. On Feb. 21, the average was $3.189 gallon, with the wholesale market up nearly 19 cents a gallon since. Reports indicate that retail gasoline in some markets in California have already topped $4.

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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