By Brian L. Milne, Refined Fuels Editor for DTN
Retail gasoline prices are moving lower across the country following the July 4th holiday as national inventory levels increase while growth in the consumption rate remains elusive.
Wholesale costs fell during the first week of July, and are poised to extend the downslide post holiday, potentially signaling that the summer highs for retail gasoline have already been reached.
Gasoline prices moved sharply higher during the second quarter, as gasoline production was ratcheted back by oil refiners looking to match their output rate with lower demand.
The lower production rate did reduce excess gasoline in the market, triggering draw downs from inventory and prices increased.
A weaker U.S. dollar also pushed gasoline prices higher. The value of the U.S. dollar to other world currencies is important for gasoline because crude oil trades internationally in the greenback. So, a weaker US dollar increases the value of crude oil and, as a result, gasoline.
There is also the relationship with the oil market and equities, with oil traders frequently following the ups and downs of the stock market because it was seen as a forward indicator for the economy. In other words, a rising stock market suggested the country was moving out of the recession and that the economy would grow, with an expanding economy using more oil and its products such as gasoline. So, the stock market’s rally off of March lows pushed up crude oil and gasoline prices.
However, broad economic indicators, such as consumer confidence and the unemployment rate released late June, early July doused bullish optimism for both equities and oil.
Consumers are spending less, and remain worried about the future, which suggests consumption patterns have changed during the recession for at least the short-term. Highlighting this concern is the jobless rate, with unemployment hitting 9.5% in June–the highest in decades. Historically, higher unemployment has meant less demand for gasoline, and this trend seems to remain in force.
Two regional markets that could see a slower pass through savings rate from wholesale to retail are in California and greater Chicago, both of which had retail prices topping $3 gallon in June. Chicago in particular, which ushered in June with low gasoline supplies that pushed prices sharply higher, remains vulnerable to higher prices.
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Gasoline inventory levels have been growing for the region, with supply coming on pipeline from refineries in Texas and Louisiana helping to rebuild the region’s stockpiles of fuel. The situation is expected to continue to improve, but low supply levels on at least one key pipeline could slow the inventory buildup that might again underpin higher pump prices 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].