By Brian L. Milne, Energy Editor, Schneider Electric
Climbing wholesale gasoline costs through the week ended April 29 are set to end a downtrend in the US gasoline average reported weekly by the Energy Information Administration (EIA) , which has declined for eight consecutive weeks since posting a 2013 high in late February.
Wholesale costs were mixed overall, but the bias was to the upside. Moreover, spot pricing in the greater Chicago market has surged following recent flooding that has created supply chain disruptions. RBOB (reformulated blendstock for oxygenate blending), a more stringent gasoline specification required in parts of the country that fail in meeting Clean Air Act attainment, spiked to a 7-1/2 month high in the Chicago spot market on April 26 in active trading while conventional grades rallied to two-month highs.
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Buttressing against a price increase in the EIA’s U.S. gasoline retail average, reported last for April 22 at a $3.536 gallon nearly three-month low, is a decline in gasoline prices in California, with spot prices in the state’s two spot markets pressured by refinery restarts.
During its first quarter earnings call on April 26, a Chevron official said the El Segundo refinery has resumed normal operations following maintenance during the first quarter. The official also said the company was undergoing a “methodical” restart of its Richmond crude unit, saying feedstock was introduced at the Richmond refinery in late April.
Chevron’s 243,000 bpd Richmond refinery has been at reduced operating rates since a fire on Aug. 6, 2012 that shut the No.4 crude unit. Company spokeswoman Melissa Ritchie confirmed with Schneider Electric that Chevron is in the process of introducing feed into the crude unit and is also in the process of bringing other units online.
“This is one step in a thorough and methodical process in allowing the refinery to resume normal operation of the crude unit,” said Ritchie.
As we enter May, the quickly ending refinery maintenance season is supporting higher crude costs on an expected increase in demand by refiners, while oil products such as gasoline and diesel come under pressure from the projected hike in output amid the ramp up in runs.
The EIA, through the week ended April 19 shows the U.S. refinery run rate, which refers to the percentage of processing at refineries against their capacity, fell to a five-week low at 83.5%.
Limited demand for gasoline amid still sluggish economic growth will cap any price upside in retail gasoline prices, too. The Bureau of Economic Analysis on April 26 reported a 2.5% growth rate in U.S. Gross Domestic Product for the first quarter compared with market expectations for a 3.2% hike, with the smaller-than-anticipated expansion for the U.S. economy during the first three months reflected in weaker-than-projected demand for fuel. That trend continued into the second quarter, with the EIA reporting implied demand for gasoline down 1.7% for the four weeks ending April 19 versus the comparable year-ago period.
The most recent data from the Federal Highway Administration also showed Americans drove 3.1 billion or 1.4% fewer miles in February than they did during the corresponding period in 2012. Cumulative travel for the first two months of 2013 was an estimated 441.6 billion miles, a decline of 1.8 billion miles or 0.4% versus the comparable 2012 period.
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 firstname.lastname@example.org.