By Brian L. Milne, Refined Fuels Editor, Telvent DTN
The seasonal trend for US retail gasoline prices remains down, but the pace of the decline will likely slow due to climbing crude oil prices. Additionally, oil refiners are expected to throttle back output for maintenance programs through the Thanksgiving holiday, limiting supply that should reduce stocks while demand is edging higher.
Gasoline inventory levels are high at more than 12.5% above the year-ago period, so there’s ample supply to avoid shortages. Based on preliminary data, gasoline’s consumption rate for the first three quarters was slightly higher than during the same time period in 2008, up 0.3%, although demand for September jumped 6.2% compared with September 2008.
Refiners are currently experiencing the lowest profit margins since the start of 2009, and have been ratcheting back output as a result. In fact, Sunoco said it would shut indefinitely its Eagle Point Refinery in New Jersey because of poor economics, while Valero Energy has sharply reduced production at a refinery in Delaware.
The trend for lower refining production in the U.S. is expected to continue, and could include more refineries closing down.
The U.S. average price for regular grade gasoline has fallen for eight consecutive weeks to $2.468 per gallon, according to the Energy Information Administration (EIA), which is the statistical arm of the Department of Energy.
The EIA expects retail gasoline prices to stabilize near where they are now, pegging a $2.44 per gallon average for the fourth quarter, and sees higher gasoline prices in 2010 because of climbing crude costs. The EIA expects the US average to be $2.65 gallon next year.
View DTN’s Weekly and Historical Gas Prices.
A chief catalyst in driving crude oil and, in turn, gasoline prices higher has been a weakening US dollar. The U.S. dollar fell to a 14-month low in early October, which triggered a rush into oil and other commodities as investors look to offset the weakness in the greenback with a physical asset that appreciates when inflation rises.
Additionally, the weaker US dollar makes crude oil, which trades internationally in the greenback, less expensive for foreign buyers.
Regionally, the changes in gasoline prices will vary depending on local supply-demand issues. In California, gasoline prices should continue lower through mid-October.
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].