By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Gasoline prices at retail outlets across the country are again moving higher after the uptrend briefly stalled in several metropolitan markets with a downturn in wholesale costs. However, wholesale gasoline costs are again on the march higher, pushed up primarily by a bullish market sentiment.
There is a strong seasonal feature in gasoline prices this time of year, with wholesale costs driving up pump prices from early March through late May for the past six years. Property changes in gasoline’s fuel specifications, refinery downtime for extensive maintenance, and the expectation for increased driving demand during the summer are all catalysts for this increase. However, analysts are pointing to current weak fundamental factors for the market, which should press wholesale gasoline costs down.
It seemed too, that the wholesale markets were set to reverse lower, highlighted by the Securities and Exchange Commission’s civil lawsuit against Wall Street powerhouse Goldman Sachs. The connection is trading in the Over-the-Counter derivatives market, which includes crude oil and gasoline.
Trading in the OTC market takes place for both hedging purposes, which is a risk mitigation exercise by industries involved in producing, buying and selling fuel. Investors including banks and large trade houses can also speculate in the OTC market.
The federal government’s lawsuit suggests a “get tough” on Wall Street approach that was initially seen reducing the amount of trading in the OTC market. Less trade volume was seen pressuring crude oil and gasoline prices in the wholesale financial markets that, in turn, establish the price benchmark in the U.S. for these commodities. This view quickly retreated in the face of bullish data showing the U.S. economy continues to recover from the Great Recession, which extended from December 2007 through June 2009.
A host of data, including a sharp 27% jump in new home sales in March compared with year prior helped to solidify the push higher in oil prices. Also, the International Monetary Fund said that it expects the U.S. to grow by 3.1% this year after two straight years with a downturn, expanding the bullish sentiment for both equities and commodities alike. A growing economy uses more fuel the view goes, translating into more gasoline demand.
View DTN’s Weekly and Historical Gas Prices.
Despite ample supply and limited local issues, the gasoline market is being driven by bullish expectations, which is having a similar impact across the country. Retail prices could gain another 15 cents to 20 cents over the next five weeks.
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]