Brian L. Milne, Energy Editor, Schneider Electric
The Energy Information Administration (EIA) said its U.S. gasoline price average for regular grade sold at retail outlets across the U.S. dropped 7.1 cents to its lowest point in two years, eight months at $3.194 gallon during the week-ended Nov. 11, with the average down 25.5 cents from the same time in 2012.
The decline in the average comes despite five straight weekly drawdowns from domestic gasoline inventory and robust demand for the motor transportation fuel early in the fourth quarter. Wholesale costs moved into the second half of November mixed with grades along the East Coast up a nickel or more suggesting the decline in the retail average is set to slow and potentially reverse higher.
EIA in its monthly short-term Energy Outlook released Nov. 13 projects retail regular grade gasoline to average $3.24 gallon nationwide during the current fourth quarter, lowering its forecast a dime from October’s expectations. For all of 2013, EIA eyes a $3.50 gallon average, revised down 2 cents from October while 13 cents less than in 2012. EIA’s outlook calls for a $3.39 gallon U.S. retail gasoline average in 2014, with gasoline prices weakening going forward on growing U.S. crude production that lifts supply and depresses price volatility.
For futures, the December RBOB contract trading on the New York Mercantile Exchange rallied to a $2.7148 gallon one-month high on the spot continuation chart Nov. 14, rallying 22.03 cents range from the Nov. 7 23-month spot low of $2.4945 gallon. The price surge shows strong technical support below $2.50 gallon for the futures contract and bullish fundamental data points for gasoline.
The EIA reported the fifth consecutive drawdown in gasoline stocks during the week-ended Nov. 8, which are down 10.7 million barrels or 4.9% so far in the fourth quarter. Meanwhile, implied demand has remained strong in the fourth quarter, averaging 9.044 million barrels per day (bpd) during the four weeks ended Nov. 8, up 406,000 bpd or 4.7% from the comparable period a year ago.
In contrast, EIA reported the eighth consecutive weekly increase in crude stocks alongside a new 25-year high in domestic crude production that pressed the December WTI crude contract down to a 5-1/2 month low at $92.51 barrels Nov. 7. EIA also said crude production from the Bakken formation in North Dakota and Montana is expected to top 1.0 million bpd for the first time in December.
Current U.S. monetary policy also underpins support for U.S. oil prices, with testimony by Federal Reserve Vice Chairman Janet Yellen Nov. 7 before a Senate Banking Committee during her nomination process to become chairman of the central bank signaling no change in the coming weeks.
The Fed has maintained the overnight bank borrowing interest rate at a historic low near zero and is purchasing $85 billion per month of government bonds with the goal to stimulate investment to increase employment. A string of supportive data points for the U.S. economy, including more than 200,000 new hires in October despite the government shutdown for half the month, drove some analysts in the market to expect the central bank would begin tapering its bond buying program when they met in December. Yellen’s testimony dashed that sentiment, with expectations now pushing any tapering by the central bank out to March 2014.
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.