Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline costs in most major metropolitan markets across the U.S. stalled an extended seasonal price decline in early October following an unexpected drawdown in the nation’s inventory of gasoline, catching the market flatfooted, and driving a better than 6 percent increase in market pricing.
Delayed data showed that during the final full week of September, domestic gasoline supply were drawn down by 1.6 million barrels, which ran contrary to market expectations for a weekly increase. Moreover, preliminary data detailed a spike in implied demand following nearly a month of slowing consumption for gasoline, suggesting improving economics for fuel suppliers.
The unexpected data occurred in what is referred to as an oversold market. What that means is most participants in the market had been expecting lower prices, and were selling out of positions that would be valuable if prices continued to increase. In other words, the market was getting “short,” and when the unexpected supply data was released it triggered many in the market to buy back these previously sold positions.
This technical feature extended the upside price push, which reverberated throughout the country.
Wholesale costs in California did not follow the trend, with wholesale markets firming marginally, as the supply-demand dynamics in the Golden State continued to improve after production issues curtailed supply in late August into September.
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Longer-term, oil veterans believe late September’s demand spike is a temporary event, likely having to do more with downstream stockpiling of winter gasoline following the transition out of summer blends than an actual recovery in demand. If this view is correct, expect the downtrend in retail gasoline prices to quickly return, with a break below $2 gallon possible in some parts of the country before year-end.
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].