By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Based on the Energy Information Administration’s (EIA) Short-term Energy Outlook for May, its $3.79 gallon U.S. average for regular grade gasoline on May 7 will also be the price that gasoline averages this summer, which it defines from April through September. If realized, the $3.79 gallon projected summer gasoline average would be 8 cents higher than the summer 2011’s average.
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The latest forecast cut 16 cents from the previous outlook released in April when the EIA projected a $3.95 gallon average. The May 7 average is also at its lowest point since the end of February, and the EIA now believes that the 2012 high for retail gasoline prices occurred in April, when the weekly average peaked at $3.941 gallon.
The lower price projections are due primarily to lower crude costs, which broke below $100 bbl in May for the first time since February. Crude prices have been under pressure from easing concerns of less world supply due to sanctions on Iranian crude by the United States and the European Union, while supply from Iraq, Libya and Nigeria have increased sharply.
The International Energy Agency said late last week oil supply held by countries that are part of the Organization for Economic Cooperation and Development topped the five-year average in March for the first time since May 2011.
While supply is beefed up, questions regarding global oil demand have again resurfaced, brought to the fore by renewed worry over the euro zone economies while economic growth in China slows.
Newly elected members to Greece’s parliament have been unable to form a government, and may fail to meet terms needed to receive bailout funding that could prompt Athens to default on its debt next month. There’s also increasing risk that Greece will be forced to exit the euro, which brings with it great uncertainty on the euro zone countries, and what that might mean for the continent’s economies.
Worry the euro-zone crisis could spill over the Atlantic and negatively impact the US economy has sparked caution in commodity trading. Meanwhile, China’s economy continues to slow, although still robust compared with the US economy. Slower economic growth by China could limit global oil demand, with the US and China the world’s top oil consumers.
In the US, the EIA expects gasoline demand to continue to leak lower looking ahead due to high gasoline prices, slowing growth in the driving-age population and the improving average fuel economy of new vehicles.
Wholesale gasoline costs were mixed across the country coming into mid-May, with some metropolitan regions seeing those prices move higher on local refinery issues that will, in turn, push retail gasoline prices higher. That is especially true in the Pacific Northwest and northern California, where unscheduled refinery downtime occurred during planned maintenance to limit gasoline manufacturing.
Gasoline inventories in California have been drawn down for the past month, as suppliers dip into stocks to offset the lost gasoline output, with supply 22% lower now than a year ago. Four refineries in northern California are shut for maintenance and repairs, while a failed restart by BP at its Cherry Point refinery in Washington spiked regional spot values.
BP moved forward scheduled maintenance at Cherry Point following a fire in a crude unit on Feb. 17. The refinery had to abort a restart on May 8, and trade sources doubt the refinery will be on line by the middle of this week as previously anticipated.
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.