Gasoline Prices Tumbling Amid Weak Demand, Economic Worry

Wholesale gasoline costs in major metropolitan regions of the country tumbled during the week following Labor Day, pressured by several features including weak consumption of the fuel leading up the holiday weekend, while driving demand consistently slumps in September from August.

Historically, gasoline demand and prices move lower in September after the summer driving season. The Federal Highway Administration’s data on Vehicle Miles Traveled consistently shows a decline in September from August. Hurricane disruptions have left fuel prices elevated at times in September, but the seasonal feature is for them to decline. Meanwhile, refining costs for gasoline decline as the summer’s more stringent fuel specifications end and the industry transitions to lower to produce winter grades.

Worry that the U.S. economy might slip back into recession, driving already low fuel demand even lower, is also pressuring gasoline prices. Economic concerns reach across the Atlantic Ocean, where there is fear the Greece might default on its debt, with the risk of a contagion affect spreading throughout the euro zone and, potentially, to some U.S. banks.

The Energy Information Administration (EIA) shows implied gasoline was down 2.9% during the four weeks ended Sept. 2 against the same timeframe in 2010, with Hurricane Irene’s march through the heavily populated East Coast seen dragging fuel consumption lower late in that period. From Jan. 1 through Sept. 2, implied gasoline demand is down 1.0% versus the same timeline in 2010.

View Telvent DTN’s Weekly and Historical Gasoline Price Index.

Regionally, flooding issues that had forced shut a segment of the Buckeye Pipeline has triggered a fuel waiver request from Pennsylvania Governor Tom Corbett to allow a less stringent gasoline specification in the Pittsburgh-Beaver Valley area that was granted by the U.S. Environmental Protection Agency over the weekend.

Separately, Magellan Midstream Partners, which operates pipelines and terminals, also issued an allocation on conventional gasoline on the northern segment of its Central System, warning of potential spot shortages at terminals in Minnesota and North Dakota. Magellan said the system is operating normally from a mechanical standpoint, but that strong demand for the region is outpacing available supply. The midstream operator said this situation might not mend itself until late September, early October, and that spot outages might occur.

The terminals impacted by the allocation are in Minneapolis and Alexandria, Minn., and at Fargo and Grand Forks in N.D.

EIA, in its latest Short-term Energy Outlook released on Sept. 7, forecasted regular grade gasoline prices will average $3.56 gallon this year, 3 cents above the prior month estimate and 78 cents higher than the 2010 average of $2.78 gallon. For 2012, EIA forecasts the average for regular gasoline at $3.54 gallon in 2012, a 10cts drop from its assessment in August.

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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