Gasoline Waiting On The Fed As Jobs Disappoint

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

Wholesale gasoline costs were mixed across the country’s major metropolitan markets during the week ended Sept. 10, with supply tightness in some parts of the country bolstering values while other regions saw their costs decline on fading demand and the switch away from the more costly to produce summer gasoline specifications.

While now in the history books, Hurricane Isaac did disrupt the supply chain in the Louisiana market, although major damage was avoided based on company and government reports. Supply disruptions are easing, with Phillips 66 recently reporting its 247,000 bpd Alliance Refinery in Belle Chasse, Louisiana, shut ahead of an approaching Hurricane Isaac seen back online in the middle of the month.

Gasoline supply tightness is reported in parts of the Southeast due to the effects of the storm, with the Environmental Protection Agency waiving the requirement to sell gasoline with very low Reid Vapor Pressure readings for eight states. The waiver runs through Sept. 15, when the low summertime RVP gasoline season ends.

Amid the seasonal change to higher RVP ratings, supply also tightened in some Southeast markets and elsewhere, as pipeline schedulers and tank farm operators coordinate to make room for the newer product. Spot gasoline prices in the Chicago market, which surged to a 15-month high in late August, also edged lower on the scheduling shift to higher RVPs.

Broader market influences include economic data from Europe, China and the United States that generally disappointed, offering additional signs of slowing economic growth. However, the worst the data is the greater the likelihood of policy action by the Federal Reserve that typically weakens the value of the dollar while supporting higher equity and commodity markets. And this is what a growing number of analysts and traders following markets believe after a terrible report on jobs was released on Sept. 7 by the Labor Department.

The department’s Bureau of Labor Statistics said there were 96,000 jobs created in the US economy in August, below forecasts for 135,000 new jobs, which analysts say is not enough to even match the needs of a growing population let alone drive down the ranks of the more than 12.5 million unemployed. The national jobless rate ticked down 0.2% to 8.1% in August, but that was due to people giving up on searching for work. The labor force participation rate shrunk to 63.5% in August, the lowest since the early 1980s.

The Federal Reserve has a dual mandate to provide price stability while doing everything possible to reduce unemployment. The data and this mandate have many believing the Federal Open Market Committee will take action to stimulate the economy through quantitative monetary easing policy during their Sept. 12-13 meeting.

The Energy Information Administration shows retail gasoline prices increased for the ninth consecutive week through Sept. 3, climbing 48.7cts or 14.5% since July 2 when the uptrend began. At $3.83 gallon, the US average price for regular grade gasoline was at a nearly 4-1/2 month high.

The average should again increase with the next weekly update as higher pass through costs continue to move through the supply chain. We should see the string of advances, which averaged 5.4cts per week over the nine-week period, give way to a decline in September however, on easing demand requirements following the end of the summer’s holiday travel season.

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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