Wild Price Swings in Wholesale Gasoline Market

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

Day to day, markets of various stripes have seen wide price movements, reflecting not only uncertainty but fear. These broad swings are also true for gasoline, which has had several whipsaw sessions of its own with no sign of abate, while gasoline also reacts to broader market gyrations. Wholesalers and retailers should expect more of the same over the coming weeks and months.

Coming into the final full week of October, wholesale gasoline costs across major metropolitan markets nationwide took double-digit price plunges, pressed lower with a declining futures market that dropped spot valuations. A major driver is weak demand for gasoline, which continues under pressure amid high unemployment and its impact to consumer confidence along with a struggling domestic economy.

This latest decline in wholesale gasoline costs should press the US retail average lower, resuming its recent downturn, although upside price surprises should be anticipated thereafter. The Energy Information Administration’s US average price for regular grade gasoline fell for sixth straight weeks through October 10 before climbing 5.9 cents to $3.476 gallon for the week-ended October 17. That increase came amid higher wholesale gasoline costs realized during the two-week period ended October 17.

Reduced Demand
Wholesale gasoline costs popped higher following the release of weekly inventory data by the EIA on October 19, with the report released Wednesdays closely watched by the market. The initial price gain was triggered by a steep draw down in gasoline supply. However, a closer look at the data showed that gasoline supplied to market, or implied demand stumbled to an eight-month low—far from bullish. The inventory drawdown was caused by low imports, which edged off a 10-1/2 year low but remained depressed below 500,000 bpd. Refinery maintenance in Europe is cited by analysts as the reason why.

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

Historically, gasoline demand does slide lower after the summer, typically the weakest during the harsh winter months of January and February. We should expect a bounce off the 8.598 million bpd implied demand rate reported by the EIA for the week-ended October 14, down from just over 9.0 million bpd during the previous week.

On Friday (10/21), the American Petroleum Institute said gasoline deliveries at 9.1 million barrels per day for September had edged up 0.3% from August. On a year-to-date basis, gasoline deliveries dropped 1.3% versus 2010, and were up just 0.1% for the third quarter versus the comparable year-ago period.

“The edging up of gasoline demand is consistent with the slightly improving consumer confidence numbers we’ve seen,” said API Chief Economist John Felmy, in a release from the API in announcing their monthly report.

The Consumer Confidence Index, as measured by the Consumer Confidence Board, increased by 0.2 from the prior month to 45.4 in September. Industrial production in the manufacturing sector, as measured by the Federal Reserve, was up by 3.9 from September in 2010 to reach 90.

During the week leading up to Halloween, the result of negotiations by European Union leaders aimed at resolving their two-year sovereign debt issues that are now at crisis levels will direct market action. Failure to reach a broad resolution in controlling their debt woes, or announcements of half measures that fail to soothe investor confidence would spark broad selloffs in equities and oil markets, as the market would then view economic recession as increasingly likely.

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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