By Brian L. Milne, Refined Fuels Editor for DTN
Retail gasoline prices increased in most metropolitan regions of the country during the first full week of 2009, pushed higher by a climbing wholesale market during the holidays, with the Department of Energy’s statistical arm–the Energy Information Administration (EIA), reporting a weekly increase in the average price for regular grade gasoline on Jan. 5 that snapped a 15-week string of consecutive weekly decreases.
The EIA posted a U.S. average for regular grade gasoline at $1.684 per gallon on Jan. 5, a $1.425 below the average during the comparable year-ago period and $2.43 or 59% below the $4.114 per gallon all-time high posted on July 7, 2008.
Wholesale trading began 2009 with expectations that the lows in crude oil were in, and that the depressed markets would increase as we move through January. That view was supported by production cuts by the Organization of Petroleum Exporting Countries that took effect Jan. 1, with OPEC pledging to cut 2.2 million bpd in crude output, while geopolitical worries emerged.
The Israeli-Hamas conflict initially supported higher crude prices on fear that the fighting could escalate and include oil producing regions of the Middle East. Also, Russia’s decision on Jan. 1 to turn off the flow of natural gas that traverses the Ukraine and supplies countries in Europe was supportive for crude, with expectations that the U.S. would send cargoes of heating oil across the Atlantic to relieve supply shortages in the EU.
However, economic news remains grim, with a series of reports last week showing a contracting economy. Topping the list of negative news was a report out on Jan. 9 by the Bureau of Labor Statistics, a division of the Labor Department, saying 524,000 nonfarm jobs were lost in December 2008 and the unemployment increased from 6.8% in November to 7.2% in December—the highest unemployment rate since January 1993.
During the last four months of 2008, 1.9 million jobs were lost according to the BLS, with 2.6 million jobs lost in all of 2008. The number of jobs lost in 2008 was the most since 1945.
By the time the jobs report was released, wholesale gasoline prices were already coming under pressure from data showing an ongoing decline in gasoline demand. By week’s end, most metropolitan wholesale markets were down, but did vary widely depending on local supply conditions.
For instance, drivers in Cleveland shouldn’t expect a decline in the pump price. Additionally, drivers in California, will encounter mixed pricing, with one local supplier, Flying J, which filed for Chapter 11 bankruptcy in late December is having trouble securing the crude it needs to run its refinery in the state at Bakersfield that is limiting the amount of available gasoline supply for the region.
About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at [email protected].