By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Advancing wholesale gasoline costs midway through March were pared on the last day of winter, but consumers in most metropolitan regions across the U.S. will still see prices at the pump taking an escalator ride higher. The market is in the grips of a typical seasonal increase, with gasoline prices almost always climbing higher from March through May.
Retail gasoline is already averaging at a price last seen in October 2008, when the market was collapsing from all-time highs registered during July 2008. At $2.788 gallon, the U.S. average is also quickly marching towards the $3 gallon mark. Breaking that price barrier was unheard of prior to the Bull Run in commodities last decade, with the bubble popping in the summer of 2008.
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Fundamental factors, which refer to the market’s supply-demand disposition, are uninspiring. Supply remains high while demand is depressed. Expectations for demand to improve as the weather warms with spring’s arrival continue to be the impetus moving the market higher.
Gasoline markets in the upper Midwest will see sharp gains in the prices they pay at their local outlet, owing to a seasonal change in their gasoline specification. The wholesale market serving the region made the switch from winter grade gasoline to the more expensive to produce summer formula, and prices shot up as a result. In fact, wholesale prices in Chicago surged to a nine-month high during the last week of winter, as the market made the transition from winter grade product to summer blends.
Consumers will still be filling up with the winter grade product in the coming weeks, but the summer increase will be imbedded in those prices. Commodities are always priced by their replacement costs, not what was actually paid for the fuel, hence the summer inspired increase to start spring.
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 more than 14 years as an analyst, journalist and editor. He can be reached at [email protected].