By Brian L. Milne, Refined Fuels Editor, Telvent DTN
The Energy Information Administration’s (EIA) U.S. retail gasoline average for regular grade snapped more than two months of consecutive gains, inching down 0.2 cents to $3.939 gallon on April 9 which made it the second weekly decline in the average out of the past 16 weeks going back to mid-December.
Easing geopolitical tensions with Iran amid talks started over the weekend between Tehran and the five permanent members of the United Nations Security Council and Germany regarding Iran’s pursuit of a nuclear capability is weighing on the oil market early this week, with the discussions seen potentially diffusing a standoff that boosted international oil prices by as much as $20 barrel. Although reports say analysts are still doubtful that a resolution will be reached, the April 14 meeting in Istanbul produced a second meeting between the parties to take place in Baghdad on May 23 that will likely keep U.S. crude prices in consolidation near term.
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There are mixed views on what a slower economic expansion in the first quarter by China, reporting 8.1% annualized growth for the first three months of the year compared with 8.9% in the fourth quarter 2011, means for global economic growth although the data initially pressured markets. Several market observers note that data aside from the headline Gross Domestic Product figure suggests the world’s second largest economy and consumer of oil remains on a strong but more balanced growth trajectory, while others argue the slower growth was engineered by Beijing to tap down inflation.
Moreover, oil demand for China, which has driven the world’s oil consumption growth rate, remains strong, with China also reported to be in the second phase of a three phase plan to increase its strategic oil reserves to 500 million barrels by 2016. The first phase, bringing its reserves to 103.2 million barrels, is filled. Construction for another 78.7 million barrels of storage capacity has been built or was scheduled to have been completed by the end of March.
U.S. economic data has been mixed, with March’s unemployment report released earlier this month still impacting sentiment, suggesting the U.S. economy is not as strong as some thought earlier in the year. Yet, while that’s a negative vote on oil demand looking forward this year, others point out that it increases the likelihood that the Federal Reserve will act to stir job gains above March’s anemic 120,000 new positions. Past efforts by the Fed to spur U.S. economic growth has triggered inflationary pressures for oil and gasoline prices.
The broader oil futures market that trades on the New York Mercantile Exchange moved into the second half of April with a selloff that will pressure wholesale costs later this week should the decline hold. Ahead of that however, wholesale costs in most major metropolitan markets increased, with large gains seen in the Midwest. This should translate into higher retail gasoline prices, with a $4.00 gallon U.S. retail average within striking distance.
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.