By Brian L. Milne, Refined Fuels Editor, Telvent DTN

The U.S. average price for regular grade gasoline sold at retail outlets dropped nearly 18 cents or 6% from a May 10 multi-month high at $2.905 a gallon to $2.728 gallon on Memorial Day, a time when retail prices have typically surged. 

The decline is less than half of the loss posted by the futures contract for gasoline, which is financially traded and used as a hedging tool by oil companies and a way to invest in the market by speculators, during May.

View DTN’s Weekly and Historical Gas Price Index.

Labor Influence
The wholesale market was moving higher again in early June, but hit headwinds after the US Department of Labor showed limited job growth in the private sector in May. The monthly report did show a decline in the jobless rate from 9.9% in April to 9.7% in May, but that was due to more people giving up on attempts to find a job. In fact, the employment-population ratio remains weak at 58.7% in May.

The employment report had been hyped ahead of its June 4 release, with market expectations calling for strong jobs growth data to be revealed, which accelerated heavy selling in commodities and equities on fears of slower economic growth. The jobless report coincided with fears that Hungary might default on its debt, adding to the market’s anxiety and increasing selling pressure, although Hungary later backtracked from comments made by one of the state’s officials.

The linkage to gasoline prices is the rate of demand. The gasoline consumption rate has been gradually improving this year after it cratered during the Great Recession, and expectations have been that demand would ramp higher with the US economic recovery. Macroeconomic data challenging that assumption has sparked selling.

The many factors impacting the oil market continues to heighten price volatility, while the longer-term trend does still point to higher prices. In early June, some additional pass through savings from May’s decline will look to filter to retail outlets.

However, consumers should not expect sharp declines at their retail outlets, with savings at the pump to be gradual. 

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].