Brian L. Milne, Refined Fuels Editor, Telvent DTN
The Energy Information Administration (EIA), the statistical arm of the Department of Energy, released an outlook projecting the U.S. retail price for regular grade gasoline will average $3 gallon in 2011-a price level previously seen as a breaking point for the American consumer. No more; with higher pump prices seen driven next year by climbing crude costs and a tightening world oil supply-demand balance.
The outlook came a day after the U.S. average jumped to a $2.958 gallon 25-month high. It’s certainly unusual for gasoline to be setting new highs in December, and the average could inch higher. That will depend on how quickly wholesale costs have passed through to retail. Wholesale gasoline costs mostly fell during the first full week of December which will arrest the price ascent. Still, don’t expect gasoline prices to tumble.
Another peculiar aspect to the recent run-up is that it came as gasoline demand growth slowed. During August, the year-on-year consumption rate reached a 3.5% growth rate. Through the four-week period ended Dec. 3, the EIA tells us gasoline demand slumped 0.7% during the same period in 2009. So far this year, preliminary data shows a 0.4% increase in gasoline demand versus 2009.
Easing gasoline demand does make sense. Two factors that historically have dampened the consumption rate have been high retail prices and high unemployment, and we currently have both. The U.S. unemployment rate in November increased to 9.8%, diminishing commuting and personal discretionary spending, while high retail prices trigger conservation.
Getting us to the new high were supply constraints in the Northeast. Lower imports in November prompted inventory drawdown in the New York Harbor and Boston markets, with those regions dependent on the ship-delivered product. Wholesale prices in those markets slid hard on Friday, further evidence of the easing supply tightness.
Refining production nationally has also increased sharply, as seasonal maintenance ends. The combination of higher domestic output and climbing imports was more than able to handle new demand. Barring an unforeseen event, we should see gasoline prices trickle lower through year end.
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]