By Brian L. Milne, Refined Fuels Editor, Telvent DTN
On Monday (12/12), the Energy Information Administration (EIA) reported the fourth consecutive weekly decline in its regular grade gasoline average, which fell 1.6 cents from the prior week to $3.274 gallon. That’s a nearly 10-month low in the average, although its 10% higher than during the same week in 2010.
It’s been a choppy price path for wholesale gasoline costs since the decline in the average began on Nov. 14, which is down 16.6cts or 4.8% from that time to Monday. Meanwhile, the New York Mercantile Exchange RBOB (Reformulated Blendstock for Oxygenate Blending) futures contract, which is used as the benchmark price in setting spot gasoline prices across the U.S., is up 2.83 cents.
The differing price paths reflect the lag in the pass through costs from the wholesale market to retail that can take as many as eight weeks to be fully reflected; although half of the costs passed through from the wholesale market are reached at the pumps in two weeks.
The seemingly benign 2.83-cent increase in futures also masks the wide price swings experienced since Nov. 14, with the nearby delivery futures contract trading in a 23.37 cents range during that period, or roughly 10% of the contract’s value. This volatility impacts pass through costs too, while reflecting the uncertainty in projecting prices amid an assortment of contradictory factors impacting the oil and gasoline markets.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
Those factors range from the feared fallout from the euro zone’s debt crisis to economic growth to possible sanctions on oil deliveries imposed upon OPEC member Iran by Europe due to Tehran’s pursuit of nuclear weapons.
Meanwhile, NYMEX crude futures with nearest delivery crossed above $100 per barrel for the first time since late July on Nov. 16, trading in a $94.99 to $103.37 barrel range during our month’s timeline. Crude prices typically increase in the fourth quarter amid higher demand due to heating needs in the Northern Hemisphere, while gasoline prices trend lower as driving demand abates from summer highs.
Rallying crude prices could disrupt the lower trend seen in retail gasoline prices before year end. Still, the EIA expects its retail average for regular grade gasoline to decline 8 cents next year from this year, seen averaging $3.45 gallon in 2012. This compares with a 2010 average of $2.78 gallon.
Citing a $3.38 gallon average for November, EIA said it “expects that gasoline pump prices will remain at or below current levels until early spring 2012, when prices begin their normal seasonal rise.”
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 firstname.lastname@example.org.