Brian L. Milne, Refined Fuels Editor, Telvent DTN
Gasoline pump prices will head higher during the final week of July, driven by double digit gains in most wholesale metropolitan markets that were again pulled up by renewed optimism over the economy.
Wholesale gasoline costs accelerated higher last week on second quarter corporate earnings reports that were better-than-expected joined by housing data that suggested the worst in the downturn in home sales and values is in the past. That data was supported by bullish comments about the progress of the economic recovery from Federal Reserve Chairman Ben Bernanke in a report to Congress, with the impact of these factors pushing the Dow Jones Industrial Average above 9,000 on July 23 for the first time since January.
The linkage between gasoline prices and investors view over the economic health of the country is demand, with a recovery seen expanding the consumption rate.
Adding to the upside push in crude oil, gasoline and diesel fuel prices was a weaker U.S. dollar, which fell to a multi-week low against the euro. A weaker U.S. dollar makes commodities more expensive.
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The macroeconomic affect of these events on energy outweighed bearish data on unemployment, with job losses expected to continue in the coming weeks at a minimum. Some analysts expect the ranks of the unemployed to continue climbing even after the economy escapes from recession. A climbing unemployment rate, which ended June at 9.5%, reduces demand for gasoline as less people travel to and from work.
Rising job losses also hurts consumer confidence, which could prompt further conservation. Gasoline demand remains down year-to-date against the comparable 2008 period.
The bullish optimism in gasoline also pushed aside rising inventory levels, with gasoline supply climbing for sixth consecutive weeks through July 17 to a five-month high. Oil refiners are cutting back on gasoline production, and some in the market believe refiners will look to hold back output in the coming weeks in an effort to reduce stockpiles.
This balancing act between production and demand is seen supporting higher gasoline prices in the near term.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent 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].