By Brian L. Milne, Energy Editor, Schneider Electric
Retail gasoline prices tracked by the Energy Information Administration (EIA) were under pressure in September, with their national average for regular grade gasoline registering a fourth consecutive weekly decline through the week-ended Sept. 30 at $3.425 gallon, an eight-month low.
It’s unclear if the EIA would update the average Oct. 7 considering the government shutdown which does affect this agency. So far, enough EIA workers are at their desks, releasing weekly inventory data Oct. 2, updating their site with market analysis, and scheduled to release their Short-term Energy Outlook Oct. 8.
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The EIA Oct. 2 supply-demand report for the week-ended Sept. 27 showed implied gasoline demand fell for the second straight week to 8.527 million barrels per day (bpd), a 4-1/2 month low. The lower demand rate is consistent with the seasonal drop in demand following summer, while also aligned with a longer-term structural trend in which US motorists drive less while vehicle mileage efficiency gains account for an ever larger portion of the US vehicle fleet.
Gasoline futures, trading on the New York Mercantile Exchange under the Reformulated Blendstock for Oxygenated Blending or RBOB, found upside support during the first week of October on fear Tropical Storm Karen would disrupt refining operations in Louisiana. The storm petered out before making landfall, with reports indicating facilities in its path emerging without damage.
November RBOB futures were already declining Oct. 4 ahead of the storm’s landing due to its weak formation, and the market’s acknowledgement that domestic gasoline supply, last reported by the EIA 12.1% higher year-on-year, was healthy.
NYMEX RBOB futures declined nearly 6.5cts on the spot continuation chart during the week-ended Oct. 4, with the expiration of the October contract Sept. 30 amplifying the downturn. Nearest delivered RBOB futures slipped below $2.60 gallon early Oct. 7 for the first time since 2012, with support found at the November 2012 low of $2.5524 gallon.
Recent history shows NYMEX RBOB futures gains in October after post-summer selling, supported by refinery turnaround activity that reduces the output of gasoline. This October, amid the government shutdown, there could be a different reality.
Making conclusions on Washington, DC politics was hazardous enough during times when bipartisanship was practiced. The current Congress, however, is bitterly divided, and some analysts are now noting the potential for an extended shutdown of government. An extended shutdown would harm the economy, seen reducing US gross domestic product and would likely reverberate globally potentially negatively affecting the euro zone’s slow recovery after the region finally extracted itself out of recession.
Slowing economic growth historically has reduced demand for energy. Analysts have recently noted gasoline demand does not move in lockstep with changes in US GDP, although the shutdown does heighten consumer anxiety that could affect discretionary spending while retarding miles driven to pressure gasoline consumption.
Limiting the downside is expectations the Federal Reserve would maintain its current stimulus efforts, which include holding historically low near zero interest rates and buying government bonds to the tune of $85 billion per month. The market had anticipated the central bank would begin tapering its bond buying program in September, which didn’t happen. Considering the potential damage the shutdown could cause the US economy, the Fed is now seen keeping its collective foot on the gas pedal as it drives to increasing liquidity to spur greater employment gains.
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.