By Brian L. Milne, Refined Fuels Editor, Telvent DTN
After inching off a one-month low last week to $272.2 gallon, the U.S. retail gasoline average is poised to post its second straight weekly increase, following wholesale costs higher. The US price benchmark for gasoline, the Reformulated Blendstock for Oxygenate Blending futures contract that trades on the New York Mercantile Exchange rallied to a nearly one-month high last week, pushing up physically traded spot prices across the U.S.
Higher spot prices reverberated through the wholesale terminal market, with suppliers lifting rack postings higher. This increase will pass through to retail in major metropolitan markets across the country.
Retail prices in California will post smaller gains however. The reason is due to a switch in forward pipeline scheduling in the spot market, which rolled to August late during the week-ended July 23. There was more than enough supply nominated for July scheduling, limiting the price increase in the wholesale terminal market for the week.
There were several factors contributing to the price advance by futures, including a higher equity market and a weaker US dollar, which slid to a 2-1/2 month low against the euro last week. Stronger-than-expected manufacturing data from across the Atlantic also bolstered the euro and the equity markets, while stress test results for European banks diminished fear of sovereign debt defaults.
A downbeat assessment of the US economic recovery by Federal Reserve Chairman Ben Bernanke during his required Humphrey Hawkins testimony before Congress weighed on the market midweek. Bernanke said the economic recovery in the US was fragile, with the Fed expecting a slower growth pace during the second half of 2010.
Oil markets surged later in the week on forecasts showing the development of three tropical waves, with one of those waves strengthening to tropical storm status. Their tracks were pointed to the Gulf of Mexico, and oil companies with drilling rigs in the projected path evacuated nonessential personnel. The storm would also delay progress in completing repair to BP’s leaking well in the deep waters of the Gulf.
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Oil markets gave back a small portion of that advance on July 23, as forecasts pointed to a weaker Tropical Storm Bonnie that was seen as unlikely as having an impact on offshore production aside from a temporary and precautionary halt to output. As of July 23, the Bureau of Ocean Energy Management, Regulation and Enforcement reported 28.3% of Gulf of Mexico oil production was shut-in ahead of Bonnie.
Buyers and sellers along the gasoline supply chain are likely to endure additional short covering triggered rallies in oil markets for the next couple of months, which could then be followed by profit taking sell-offs absent a hit on the country’s oil infrastructure. The National Oceanic and Atmospheric Administration forecasted an extremely active hurricane season in the Atlantic Basin, which runs from June 1 through Nov. 30. The most active period is late August through early September.
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].
