Wholesale gasoline costs were mixed through the week-ended Aug. 22, while the New York Mercantile Exchange September RBOB (gasoline) futures contract edged higher. In California, wholesale gasoline costs moved up on a sharp drawdown from state specific gasoline inventories, while in the Midwest costs were higher as refining activity eased. Gasoline costs in the Northeast slipped on ample supply.
Weekly retail gasoline prices should continue their decline despite the mixed results in the wholesale market, pressured from easing crude costs during August. On Aug. 15, the U.S. gasoline average for regular grade gasoline, all formulations, sold across the country was $3.604 gallon, according to the Energy Information Administration (EIA). That’s down 36.1 cents or 9.1% since reaching a 32-month high on May 9 at $3.965 gallon. Mixed wholesale costs along with busier travel anticipated for the upcoming Labor Day holiday will slow the decline in retail gasoline prices.
Market followers will note that NYMEX WTI crude futures are down 19% from May 9, and nearly 27% since reaching a multi-year closing high at $113.52 on May 2. However, U.S. gasoline prices have followed international crude pricing, i.e. the European benchmark Brent crude, this year due to a price disconnect between WTI and global oil blends. WTI crude was trading at a record spread in mid-August at more than a $25 barrel discount to Brent.
A key feature in supporting the wide Brent premium over WTI has been lost Libyan crude supply amid civil war. Most Libyan crude was processed by Europe, so the impact had a greater impact there. Now, with the civil war seeming near an end, Brent crude prices are slipping. Still, it could take months for production to restart, with full recovery of Libya’s oil production not expected for three years, based on a recently released study by Wood Mackenzie.
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Sliding Brent crude prices would pressure gasoline costs in the coming weeks. So too will the transition to winter grade gasoline formulations, which costs less to produce, while demand slides after summer. Meanwhile, the American Petroleum Institute said on Aug. 19 that gasoline demand in July was the lowest for a July in 10 years, linking weak consumption with the poor state of the economy, high unemployment and frittering confidence by the American consumer.
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]