By Brian L. Milne, Refined Fuels Editor for DTN
Advancing prices in the wholesale market will push retail gasoline prices higher across the country during the final full week of March, while lifting the national average for gasoline closer to the $2 gallon mark.
The push higher in wholesale gasoline markets was triggered by broad-based gains in both equity and commodity markets on a growing sentiment that recent actions by the Federal Reserve and Treasury Department will work to stem the economic malaise. The Fed and Treasury each announced extensive spending programs designed to restart the economy, with Fed Chairman Ben Bernanke expecting the recession to end this year.
The announcements were met, generally speaking, by investor approval that triggered successive gains in the stock market and supported commodities on a view that an improved economy will generate greater demand.
The heavy spending plans, which could total more than $2 trillion combined, also weighed on the U.S. dollar’s value versus international currency as the U.S. deficit would expand dramatically. That matters to energy commodities because crude oil trades internationally in U.S. dollars, so a weaker dollar means more are needed to buy the same barrel of crude.
Oil Prices Rising
This combination of events pushed the price of U.S. benchmark crude oil above $50 per barrel last week, which hasn’t happened since the first week of the year. Crude is the largest cost component in the production of gasoline.
Also, the wholesale gasoline market typically increases in value from late winter until early July, referred to the spring rally. Not everyone in the market is buying into the view that gasoline will continue to rally this spring however, noting the historic relationship for lower prices when the unemployment rises because of decreased demand for fuel.
The preliminary gasoline consumption rate remains above 2008 levels when viewing a rolling four-week average, however the year-on-year increase has slipped from 2.2% in late February to 1.1% by mid-March. The unemployment rate was pegged at 8.1% at month-end February and is expected to show an increase for March.
For now, the U.S. average for regular grade gasoline remains poised to hurdle $2 per gallon before tax day next month. The national average was last assessed at $1.91 gallon.
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]om.