Brian L. Milne, Refined Fuels Editor, Telvent DTN
July ended with a rally in wholesale prices for gasoline that either reversed or otherwise mitigated what would have been a decline in these costs for the last week of July. As a result, wholesale gasoline prices were mixed that will have a limited impact on pass through costs from wholesale to retail.
The U.S. retail gasoline average should edge higher when the Energy Information Administration (EIA) updates its pricing data, with the U.S. average for all formulation of regular grade last reported at $2.749 gallon on July 26, a one-month high. The retail price will continue to climb in early August.
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A confluence of indicators are supporting a rally in the New York Mercantile Exchange oil futures market at the outset of August following a slightly weaker-than-expected initial reading on U.S. Gross Domestic Product released on July 30.
The Department of Commerce reported a 2.4% annualized growth rate for the U.S. economy for the second quarter, below the 2.5% expected by the market. The department did revise higher first quarter GDP by 1% to show a 3.7% expansion in the economy which also highlighted that the economy did slow in the second quarter. However, the 2.4% growth rate has drowned out talk for a double dip recession.
Meanwhile, the slowing economic recovery has sparked speculation that the Federal Reserve might reduce an already low overnight bank borrowing rate, which is currently at 0.25%, to help spur business activity. The lower interest rate would pressure the U.S. dollar since it pays less to hold greenbacks, while simultaneously supporting a higher crude price because oil trades internationally in the dollar.
Major stock indices were rallying to start early August on stronger-than-expected manufacturing results in Europe and second quarter earnings reports. Meanwhile, tropical storm activity continues to pick up during what has been forecasted to be a very active hurricane season in the Atlantic Basin. Hurricane activity is typically the most intense during late August, early September.
NYMEX nearby delivery crude futures surged to a three-month high above $80 per barrel on Aug. 2, which is pulling higher gasoline prices. Additionally, mid-summer driving demand is soaring, factors that will underpin climbing prices at the pump nationally.
Jobs data for July due out Aug. 6 could short-circuit the price advance. The national unemployment rate was 9.5% in June, and some believe the rate of the jobless increased last month.
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]