By Brian L. Milne, Refined Fuels Editor, Telvent DTN
The national gasoline average for regular grade provided by the Energy Information Administration (EIA) is rapidly approaching $4 gallon, reaching $3.941 gallon on April 2, which was the tenth consecutive weekly increase in the average. Moreover, the average has increased in 14 of the last 15 weeks, going back to mid-December, and is up 64.2 cents or 19.5% since Jan. 2.
Judging by supplier postings at regional distribution terminals, we are likely to see a pause in the torrent higher by retail gasoline prices, with wholesale costs down in most metropolitan markets. This was especially true in the case of the Chicago, Detroit and Indianapolis markets, where wholesale costs plummeted by 19 cents or more in a week’s time.
The steep drop in wholesale costs in the Midwest comes alongside sharply higher retail prices, with gasoline pump prices above $4.20 gallon in some metropolitan areas, including Chicago. Historically, a high price for retail gasoline had reduced demand.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
Another historical correlation impacting gasoline demand is high unemployment, with the most recent report on jobs in the U.S. painting a different picture for U.S. economic growth than was thought to be the case.
On April 6, when most markets were closed for Good Friday, the Department of Labor reported 120,000 jobs were created in March, well below the 210,000 expected, and about half the job growth pace witnessed in recent months. Some analysts are suggesting that the higher plus 200,000 monthly increase in jobs from December to February was due to mild winter weather, bringing forward new hires while reducing what would have been better numbers for March.
Despite the smaller than expected increase in new jobs last month, the national unemployment rate eased from 8.3% to 8.2%. However, that’s due to a decline in those seeking a job. The employment-population ratio dipped 0.1% to 58.5%, with the participation rate slipping from 63.9% to 63.8%. A lower number of people employed would reduce the number of individuals traveling to and from work.
One month’s data doesn’t make a trend, but the report threw cold water on market optimism for the economy, with the gasoline futures contract, RBOB, trading on the New York Mercantile Exchange sliding to a nearly one-month low.
Some analysts note, however, that a slower growth rate in U.S. employment could prompt the Federal Reserve to embark on another round of monetary easing policy referred to as quantitative easing, which works to cut interest rates on various investments such as government bonds in an effort to push money sitting on the sidelines into play.
QE3 was thought to be unlikely in the near term, an unpopular action for many because it expands the Fed’s balance sheet and typically weakens the U.S. dollar while also having the potential to distort markets. Previous QE activities have had the result of spurring equities and commodities values sharply higher, with some investors purchasing commodities to retain or gain value as the dollar weakens.
Recently released minutes of the central bank’s March meeting illustrated the reluctance by some members to engage in another round of QE activity. The March unemployment rate could be argued however to consider implementing such stimulus, which would, as suggested by recent history, underpin higher oil and gasoline prices.
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 firstname.lastname@example.org.