By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Gasoline futures known as RBOB (Reformulated Blendstock for Oxygenated Blending) that trade on the New York Mercantile Exchange tumbled 35cts or 14 percent from a 19-month high reached on May 3 to May 17, capping the uptick in retail prices ahead of the unofficial kickoff to the summer driving season during the Memorial Day weekend.
The futures contract serves as the price benchmark for the physically traded wholesale markets, so the price decline in futures reverberates throughout the physical markets. This price decline is gradually working its way through to retail outlets.
On May 10, the Energy Information Administration (EIA), which is the statistical division of the Department of Energy, said regular grade gasoline averaged $2.905 gallon for the U.S., which is nearly a 19-month high. The average will decline from there in the near term, although the EIA does expect the pump price to average $2.94 gallon nationally this summer.
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Gasoline prices rallied into May on expectations that gasoline demand would climb as the US economy grew following the recession. Fuel demand was severely pressured during the recession, and the market was speculating that a growing economy would boost the gasoline consumption rate to pre-recession levels.
However, preliminary data shows gasoline demand from Jan. 1 through May 7 is up only 0.4% compared with the same timeframe in 2009, when the US was in recession. Meanwhile, gasoline supply is well above the five-year average.
The market has shrugged off the weak fundamental factors – supply-demand balance – on expectations for greater fuel demand, but that sentiment has reversed on worry that the economic recovery will be less robust. That concern is generated by sovereign debt issues in Europe, namely Greece.
The euro has tumbled to a four-year low against the dollar on the debt default concerns in Europe and sluggish economic growth expectations for the euro-zone, which is pressuring crude oil prices. Crude trades in U.S. dollar denominations, so a stronger greenback weighs on the price of crude oil.
Wholesale gasoline prices remain under pressure midway through May, offering consumers a price break at the pump as driving gears up for summer vacations. Consumers should expect these pass through savings to knock lower retail prices over the next few 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]