Wholesale Gasoline Costs Continue Upside Push

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

Retail gasoline prices in the U.S., which have already reached a nearly five-month high, are set to again increase as wholesale costs continue to climb on multiple factors from geopolitical risk to unexpected refinery outages.

At $3.523 gallon as of Feb. 13, the Energy Information Administration’s (EIA) regular grade retail average for the country is at the highest point ever this early in a calendar year, and during a time when seasonal demand is weak. On top of seasonal weakness, gasoline demand has been down historically, hovering near 10-year lows, with preliminary data from the EIA showing an implied consumption rate so far this year that’s 7% lower compared with the same timeframe in 2011.

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

On the geopolitical front, tension is building regarding Iran, which over the Presidents’ Day weekend announced that it would not ship any crude oil to the United Kingdom or France in a retaliatory move over an embargo of Iranian oil agreed to by the European Union and set to take effect on July 1. The sanctions are in response to what western nations believe is a pursuit of nuclear weapons by Iran, which Tehran denies.

Iran’s embargo of UK and France were symbolic, with the UK not receiving any oil from Iran while France had previously ended imports of 70,000 barrels per day (bpd) from Iran. Countries along southern Europe—Spain, Italy and Greece, are the largest Iranian importers within the EU, with those countries working at finding alternative sources of crude.

The greater concern is what other actions Iran might take as the sanctions tighten, including its previous threat to shut the Strait of Hormuz—a key oil shipping lane in the Middle East where nearly 17 million bpd of oil passed through in 2011. For perspective, the International Energy Agency estimates global oil demand for 2011 at 89.1 million bpd, so 19% of that oil traversed the Strait of Hormuz last year.

There’s also heightening concern that Israel is preparing an attack on Iran’s nuclear facilities this spring, which would spike oil prices.

Iran is the second largest oil producer with the Organization of the Petroleum Exporting Countries.

In addition to higher crude costs, several regional wholesale gasoline prices have moved up sharply in mid-February. A string of refinery outages along the West Coast has triggered double-digit gains in wholesale costs from Los Angeles to Seattle. In Chicago, after regional cash differentials were pressed down sharply on a glut of supply, they roared back, setting up sharp increases in upper Midwest wholesale gasoline costs.

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 16 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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