Worrisome Jobs Data and Seasonal Pressure for Gasoline

Brian L. Milne, Energy Editor, Schneider Electric

GasPumpsLRStabilizing in the mid-$2.60 gallon range during the first full week of 2014, the New York Mercantile Exchange RBOB (gasoline) futures contract lent upside support for wholesale gasoline costs in several large metropolitan markets across the U.S. coming into the second week of January.

The boost in gasoline costs should lift retail prices in several markets, albeit the upside should be limited amid the bearish seasonal pattern for gasoline, while the Energy Information Administration’s (EIA) U.S. retail gasoline average edged up 0.1 cents to a $3.332 gallon 11-week high Jan. 6.

View Schneider Electric’s Weekly and Historical Gasoline Price Index.

Snowstorms and extreme cold for much of the country earlier in the month was seen limiting driving demand, although the deep freeze also triggered several refinery outages that would reduce gasoline production for the week-ended Jan. 10 when data is released this week, potentially mitigating the lost demand. Nonetheless, driving demand is lowest this time of year, which should pressure gasoline values near term.

The market was also thrown a knuckle-ball Jan. 10 when the Department of Labor reported a paltry 74,000 new jobs were added to the U.S. economy in December, well below an expected 200,000 new hires for the month. The U.S. jobless rate tumbled 0.3% to 6.7%, the lowest since October 2008. However, the decline was because roughly 350,000 individuals gave up on trying to find a job, with long-term unemployed accounting for 38% of all those employed. The labor participation rate hovers near a 30-year low.

The report triggered index selling in the U.S. dollar, weakening the greenback which pushed NYMEX WTI more than $1 higher to $92.72 barrel. The dollar was strengthening as the Federal Reserve begins this month tapering its $85 billion monthly bond buying program by $10 billion, as it looks to wean markets off this monetary stimulus plan. Minutes of the Dec. 17-18 Federal Open Market Committee released Jan. 8 showed a majority of Fed officials comfortable with a gradual tapering of the bond buying program through 2014, but the Nonfarm Payroll report added a new variable to the investor calculus.

The uncertainty, not just for the rate of Fed tapering but also of the veracity of the U.S. economy that showed strong growth during the fourth quarter 2013, will bleed into domestic oil prices, potentially buoyed if sentiment means the Fed stimulus would continue longer than recently believed. A number of analysts are now calling the December jobs report a fluke or blaming the low hiring figure to bad weather however, so another month from now might provide a clearer picture on this key statistic for the gasoline market. Historically, high unemployment has correlated into lower driving demand.

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 18 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.