By: Brian L. Milne, Energy Editor, Schneider Electric.
The Energy Information Administration’s (EIA) U.S. average price for all formulations of regular grade gasoline sold at retail outlets jumped another 7.3 cents through the week-ended Feb. 11, which was the eighth consecutive weekly increase in the national gasoline average.
Since Dec. 17, when the U.S. average posted a 2012 low at $3.254 gallon, the national average has surged 35.7cts or 11% to $3.611 gallon. Most of the increase is from higher crude costs, with the New York Mercantile Exchange WTI crude futures price rallying to $98.24 a barrel in late January, a 4-1/2 month high on the spot continuation chart. The crude contract is trading in a $95 to $96 barrel range in starting the Feb. 19 week.
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NYMEX RBOB (reformulated blendstock for oxygenate blending) futures, the contract benchmarked against for spot gasoline trades, has set four consecutive fresh highs on its spot continuation chart through Feb. 19 at $3.1691 gallon, gradually scaling the short squeeze induced surge in late September by the now expired October 2012 RBOB contract. The October 2012 contract spiked to $3.4258 gallon on its final day on the board. We could very well see the late September high by NYMEX RBOB futures challenged in the coming weeks, with the spot month contract posting a 2012 high on March 29 at $3.4455 gallon.
In 2012, EIA’s U.S. retail gasoline average peaked at $3.941 gallon in early April. If the same pattern is followed this year, the national average would gain another 33 cents over the next seven weeks, averaging 4.7 cents per week.
The surge in NYMEX RBOB futures early in the year occurs annually in what is known as a preseason rally. Prices climb from winter lows when gasoline demand is weakest through early spring on refinery turnaround activity, which is expected to be heavy this season, and with the move to an environmentally stricter fuel specification to reduce emissions when the weather is warmer. Meanwhile, gasoline demand peaks during the summer months.
These features are well known in the industry and marketplace, and consistently spark buying activity by speculators.
Data from the Commodity Futures Trading Commission shows open interest—the number of outstanding futures contracts—since mid-January hovering at levels last seen in April 2012. Meanwhile, noncommercial market participants, also known as speculators since they are not hedging an underlying physical position, were holding steady during the week-ended Feb. 12 near a net 95,000 net-long stance. It eased 100 contracts from the previous week when the net-long position was at its third all-time highest. A long position is one in which expectations are for prices to increase.
Since NYMEX RBOB futures continue to post fresh highs, pulling higher spot and rack prices, the assessment is for retail gasoline prices to continue to advance. We are likely to see the advance in retail prices at least through February, if not continuing through all of March.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at email@example.com.