By Brian L. Milne, Refined Fuels Editor for Telvent DTN
Still feeling the impact from last month’s Hurricane Irene, wholesale gasoline costs in most metropolitan markets across the United States moved higher Labor Day, the celebrated end to the summer driving season.
Irene made a rare appearance by a hurricane in the Northeast, impacting the supply chain in the New York Harbor market, which serves as a key delivery point for gasoline and heating oil. The New York Mercantile Exchange uses the Harbor as the delivery locations for the Reformulated Blendstock for Oxygen Blending futures contract known as RBOB and for the heating oil futures contract.
Nationally, these two contracts are indexed against in setting prices for physical supply of gasoline, diesel, jet fuel and heating oil, so product movement delays in this part of the country can and did have a greater impact beyond the Northeast and Mid-Atlantic regions.
As it turns out, Irene caused an outage at a delivery hub in northern New Jersey at Bayonne, which prompted the CME Group, which owns NYMEX, to issue a force majeure on August heating oil contracts outstanding in front of a Sept. 1 deadline. The terminal resumed operations ahead of that deadline, and those outstanding contracts were cleared, however this illustrates one of Hurricane Irene’s impact.
Wholesale gasoline costs are down hard in the day following Labor Day, with already weak demand for gasoline during the summer’s peak driving season to get further downgraded. Historical data from the Federal Highway Administration shows that Vehicle Miles Traveled in the U.S. is always lower in September than in August. Meanwhile, refiners are phasing out the more expensive to produce summer gasoline blends in the transition to winter grades.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
U.S. demand for gasoline this year through Aug. 26 is down 1.0% compared with the same timeline in 2010, partly explained by dour consumer sentiment over an economy that appears to be flirting with another recession. There has been a stampede of poor economic data points emerging that bears this out, with the unemployment figure likely the most important for those in the gasoline business.
On Sept. 2, the Department of Labor showed no new job growth in August, which was the first time that happened in the U.S. since 1945. The unemployment rate was stuck at 9.1% in August, while the Obama administration said on Sept. 1 that they now expect the national jobless rate to hold above 9% through 2012.
Against this backdrop, U.S. retail gasoline prices should move lower through September after an initial increase. This forecast would likely be null and void should another government stimulus package be announced by the White House or the Federal Reserve.
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].