Wholesale gasoline costs posted sharp declines in most regional markets during the second week of December, driving pump prices at retail outlets lower, with the trend expected to continue through the holidays.
Pressuring gasoline prices are slumping crude costs, which can account for as much as 70% of the cost of a gallon of gasoline. The benchmark crude for the U.S. West Texas Intermediate, fell below $70 per barrel on Dec. 11 for the first time since early October, and is seen slipping to $65 barrel, if not lower, in the short term.
Pressuring crude prices has been weak fuel demand and a surplus of supply, with the market ignoring that dynamic during a six-month rally from multiyear lows in March to one-year highs in October.
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The rally stalled in November, holding within October’s wide price range, as the market battled between expectations on demand as the U.S. economy heals and weak support from the fundamentals. Projections earlier in the year that demand would have rebounded by the fourth quarter failed to be as robust as anticipated, triggering the sell-off into mid-December.
Another critical factor pressuring gasoline prices has been the resurgence of the U.S. dollar after a 10-month slide. While there are questions on the durability of the turnaround in the greenback, its improved value against international currencies means fewer dollars are needed to buy the same barrel of crude oil than in late November. It also triggered a sell-off by investors in crude oil, which were buying the commodity as a way to guard against the lost value in the currency.
The oil markets remain choppy, but the price trend for the rest of 2009 is lower. The pass through savings from sliding gasoline costs in the wholesale market could be gradual however, slower filtering through to local retail outlets nationwide.
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].