By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Retail gasoline prices are poised for sharp increases across the country in early April following big gains in the wholesale market right in front of the Easter holiday, which follows mostly flat to lower prices at many local stations in late March.
Driving the advance in the wholesale market was bullish sentiment for the economy after a series of reports showed strong growth in manufacturing and improvement in the jobs picture. The unemployment rate remained unchanged at 9.7% in March, but 162,000 jobs were added. The report gave traders in the market a view that the recovery from the 2007-2009 Great Recession is likely to continue. This view is diminishing a bearish opinion that the U.S. economy was headed for a double dip recession.
The stock market, already advancing, is in rally mode following the rosier view of the economy. The stock market is a forward indicator, with advancing equity values suggesting growth for the US economy also lending support for commodities. The implication of this economic growth for oil and gasoline is that an expanding economy uses more fuel. Greater demand would push prices higher.
Recent data also showed strong oil demand for China. The market watches China closely because its rapidly expanding economy is a huge consumer of all types of commodities. In fact, China was a primary feature in driving oil above $100 a barrel last decade. The strong growth in oil demand by the Asian powerhouse suggests oil prices will climb globally, pushing costs up for U.S. oil refiners that translate into higher prices for gasoline.
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Joining this concert of activity is the annual transition from winter-grade gasoline to summer-grade, with the latter costing more to produce. The anticipation of higher demand during the summer months also bolsters values, with that expectation triggering additional buying in the wholesale financial market for gasoline known as futures. With rare exception, gasoline futures increase from early March through late May.
Consumers in Washington State and nearby Oregon might see prices increase more than other markets because of an April 2 explosion and fire at the Anacortes Refinery in Washington. Five workers were killed and another two critically injured by the explosion and subsequent fire, which has also reduced gasoline and diesel fuel production. A formal investigation has begun only recently, and there are no certainties on the impact of overall operations longer-term at the facility. The influence on gasoline prices in the region could be limited.
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].