By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Across the country, retail gasoline prices are accelerating their move to the downside following a big drop in the wholesale market as September nears an end and oil refiners transition to winter grade blends that are less costly to produce. Preliminary data also shows that gasoline demand is trending lower, which is typical this time of year, with the summer driving season now a memory.
The drop in demand, which coincided with a big hike in gasoline imports, also pushed national supply levels to a 10.7% year-over-year surplus.
The supply surplus is overstated however, with data compared with a problem-plagued period last year in which two hurricanes-Gustav and Ike-nearly bookended September 2008, and triggered shortages from the Gulf Coast north along the Atlantic Coast and into the upper Midwest.
The lack of hurricanes impacting drilling rigs and shipping lanes in the Gulf of Mexico as well as refiners in Texas and Louisiana this year represents another factor weighing on gasoline prices. The hurricane season, which runs from June through November in the Atlantic Basin, continues, but the risk of a hurricane impacting the region’s production and refining is reduced with each passing week.
Wholesale gasoline costs posted double-digit declines in most metropolitan markets across the country during the final full week of September, applying pressure to pump prices.
Expectations, which can change suddenly, call for more price downside amid a view that, while believing that the economy is in recovery mode, see gasoline demand constrained by high unemployment and a more cost conscious consumer.
Gasoline prices in California however are bucking the national trend. Retail prices in the Golden State, which are usually the most expensive in the country due to strict environmental regulations governing fuel specifications as well as a reduced production level when scaled to demand and compared with most other states, were even higher than usual.
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This was due to unexpected refinery downtime in August. Retail prices were poised for a big drop after reaching an 11-month high during the middle of September. The downside move was short-circuited however following two fires at refineries in the state late last week.
Late Thursday (9/24), Chevron experienced a fire in a unit that removes sulfur at its refinery in Richmond. Less than 12 hours later, Tesoro encountered a fire on Friday in a unit that processes heavy feedstocks at its refinery in Wilmington.
Both fires shut the units, and traders in the wholesale market rallied prices nearly 20 cents on Friday out of fear of short-term supply shortages. Friday’s surge erased what would have been a sharp decline in wholesale costs. As a result, pump prices in California will stay high, at least in the short-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].