By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Through June 20, the Energy Information Administration (EIA) reported the sixth weekly decline in the U.S. average retail gasoline price, with lower wholesale costs through the week-ended June 24 set to extend that trend for a seventh week. Moreover, a release of emergency oil reserves announced June 23 will continue to apply price pressure to wholesale costs in early July despite July 4th holiday travel.
As of June 20, the EIA’s US average retail gasoline price was $3.652 gallon, down 31.3 cents or 7.9% from May 9 when they reached a 32-month high.
The International Energy Agency, a Paris-based watchdog for industrialized nations created in the 1970s following the Arab oil embargo, surprised the markets on June 23 in announcing that 60 million barrels of crude would be released from emergency supply reserves held by its 28 members during a 30-day period. The IEA said the release of the emergency supply was triggered by lost Libyan output due to civil war in the North African nation, which is also a member of the Organization of the Petroleum Exporting Countries. The lost production has had a greater impact on Europe, where oil supply is down to a five-year low.
IEA said the release of emergency crude supply was necessary to offset the lost production in front of heavier demand during the third quarter, while saying high oil prices threaten a fragile economic recovery. The U.S., an IEA member, will provide half of the emergency supply, drawing from the Strategic Petroleum Reserve, which currently holds 727 million barrels of oil.
The unexpected announcement dropped oil prices to four-month lows. The emergency supply will continue to pressure oil prices near-term, but are not seen having an enduring impact on the market. In reality, the emergency release ratifies speculation of a tightening global oil-supply demand balance while also illustrating the lack of policy by consuming nations such as the U.S. to address the coming shortfall.
Growing oil demand is driven by emerging economies highlighted by China’s ongoing expansion. In the U.S., recent indicators show fuel demand waning however, victimized by high oil prices, high unemployment and slowing economic growth.
Recently, the Federal Highway Administration released data showing Americans drove 6.1 billion or 2.4% fewer miles in April than they did during the corresponding period in 2010.
Looking ahead to the July 4th weekend, the Automobile Association of America projects 39 million Americans will travel 50 miles or more from home during the Independence Day holiday weekend, a 2.5% decrease from the 40 million people who traveled a year ago, according to an AAA news release.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
“AAA is projecting a slight decline in the number of Independence day travelers mainly due to fuel prices being approximately one dollar per gallon higher than last year,” said Glen MacDonell, director AAA Travel Services. “Increased fuel costs are also responsible for a shift in the demographics of the typical Independence Day traveler as high prices impact lower income households more significantly.”
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 email@example.com.