By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline costs across the U.S. ended the final week of July mixed with a downward bias, which should arrest the gradual increase in retail pump prices in many metropolitan markets. That follows four consecutive weeks in which the U.S. average retail price for regular gasoline has increased, climbing 12.5 cents or 3.5% from June 27 to a $3.699 gallon national average on July 25, according to data from the Energy Information Administration (EIA).
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In financial gasoline trading, the market’s focus has now turned to contracts delivered in September when gasoline demand has historically fallen from August consumption rates, as the summer driving season ends. This combined with sliding crude costs in early August should spark a string of declining retail prices in the coming weeks.
Accelerating a downturn in oil prices has been limited demand amid a sluggish U.S. economy with high unemployment, with new data released recently showing that the country’s economy is much worse than initially thought. That was highlighted on July 29 when the Commerce Department’s Bureau of Economic Analysis said second quarter growth was limited to 1.3% against expectations that a 1.8% expansion had occurred. More striking, BEA revised lower first quarter GDP from 1.9% to 0.4%, while showing that the 2007 to 2009 recession was deeper than initially projected.
The GDP report shows consumers spending less, corroborating weak durable goods orders for June, while on Aug. 1 data on manufacturing for July showed its weakest results in two years. The data sets illustrate what many have been saying; that the US economy had slowed during the second quarter. These results have prompted banks to dial back GDP expectations for the rest of 2011.
The limited growth for the U.S. economy dovetails with fading consumption for oil products, which are down 0.8% from Jan. 1 through July 22 against the comparable year-ago period, according to EIA data. Implied gasoline demand was down 3.3% during the four weeks ended July 22 versus the same timeline in 2010, sliding now compared to a ramp up in consumption this time last year.
“To see summer gasoline demand down under 9 million is pretty abysmal. Once relatively elastic, the pressure put on households and businesses by rising energy costs can be easily measured by their resistance at the pump, which the demand number shows with brutal clarity,” said Michael Fitzpatrick, analyst with a New York-based hedge fund, in a recent note to clients.
During the week-ended July 22, implied gasoline demand was 8.999 million bpd, EIA said, down 633,000 bpd from the 9.632 million bpd demand rate during the same week in 2010.
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 15 years as an analyst, journalist and editor. He can be reached at [email protected]