Wholesale Gasoline Costs Continue to Climb

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

The average price for retail gasoline in the U.S. is holding near a 33-month high, and is up more than $1.00 compared with the same week in 2010, and there’s still more upside as we move into May.

According to the Energy Information Administration, U.S. retail gasoline prices averaged $3.879 gallon on April 25, holding just below the Aug. 4, 2008 high of $3.88 gallon. So far in 2011, the average has surged by 82.7 cents or 27%, climbing in 15 weeks out of 17 weeks this year. The average has increased during the past six weeks, and will again move higher when the EIA releases their weekly prices for May 2.

Wholesale gasoline costs have moved up sharply since April 25, with multiple metropolitan areas posting better than double-digit increases from the previous week that still need to work through the rest of the supply chain to retail. The climbing costs point to a U.S. gasoline average above $4 gallon ahead of the Memorial Day weekend.

The latest burst to the upside was propelled by ongoing concerns over oil supply vulnerability in the Middle East and North Africa, and given further upside momentum on a weakening U.S. dollar that accelerated lower after the Federal Reserve said it would maintain the overnight bank interest rate at a historically low level near zero. A weaker dollar has an inflationary impact on oil prices for US buyers.

Supply data from the EIA also detailed the 10th consecutive weekly drawdown from US gasoline inventories through April 23, with the latest 2.5 million barrel weekly decline larger-than-expected by the market. The most recent data shows that gasoline supply has tumbled 35.5 million barrel or 14.7% since Feb. 12, and are now 18.1 million bbl less than during the comparable year-ago period while holding slightly below the five-year average.

View DTN’s Weekly and Historical Gasoline Price Index.

A trio of refinery outages in Texas City, Texas, related to a storm triggered area-wide power outage also rallied gasoline prices in late April.

In financial gasoline trading through the New York Mercantile Exchange RBOB (reformulated blendstock for oxygenate blending) futures contract, which serves as the US gasoline price benchmark in physical wholesale gasoline trading, futures rallied 15 cents gallon during the last business week of April. Based on technical factors, charts show the upside has another 15cts; and when considering seasonal factors, gasoline prices typically move higher in May. Should the upside technical target be reached, the U.S. retail average would overtake the $4.11 gallon all-time high reached in July 2008.

Another seasonal feature for gasoline is that the price usually peaks in May before easing during June into the July 4th holiday. If that seasonal feature is realized this year, we could be nearing a short-term peak in the U.S. gasoline average.

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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