By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Retail gasoline prices are at seven-month lows which equates to the decline in gasoline futures trading, with the gasoline contract having tumbled to its lowest level since mid-February. Lower wholesale costs are still moving through the supply chain, so the decline in pump prices will continue through early October.
The Energy Information Administration reported the US average for all formulations of regular grade gasoline tumbled 9.2 cents to $3.509 gallon during the week-ended Sept. 26, with the previous low occurring on Feb. 28 at $3.383 gallon. The U.S. average moved sharply higher from late February, as the Arab Spring was evolving and Libya fell into civil war, with the average peaking on May 9 at $3.965 gallon. Since that time, Libyan rebels have overthrown Muammar Gaddafi, and are taking control of the nation’s oil industry.
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Data continues to show declining gasoline consumption in the United States, with the Federal Highway Administration reporting late last month that vehicle miles traveled in July were 2.5% less than in July 2010. California State Board of Equalization said Sept. 29 that gasoline consumption for the state was down 2.8% in June compared with June 2010, while 3.6% lower for the second quarter versus the year prior period.
“In the face of persistent high gasoline prices, Californians continued to use less gasoline,” said Jerome Horton, BOE chairman.
In addition to retail prices, high unemployment acts as a drag on gasoline consumption, with the jobless rate seen flat in September at 9.1% when the Department of Labor releases their non-farm employment report on Friday (10/7). The unemployment rate is expected to remain high through the November 2012 presidential election.
Regionally, gasoline and diesel supply in the Mid-Atlantic and Northeast will tighten as refineries in Pennsylvania likely close. Late last month, ConocoPhillips said they would permanently close their Trainer refinery in Pennsylvania in six months unless it finds a buyer, reporting that they are already idling operations there. This comes on the heels of Sunoco’s announcement earlier in September that it would shut its Philadelphia and Marcus Hook refineries in 2012 unless it finds a buyer. Sunoco already shut its Eagle Point refinery in New Jersey.
The refiners point to unacceptable margins in processing crude at the plants amid weakening demand for gasoline. The New York Harbor is also the country’s largest receipt point for gasoline imports, putting those refineries in direct competition with increasing supply of gasoline on the water. Meanwhile, crude costs are cutting into the margin at these facilities because, absent expensive upgrading, the refineries can only process light sweet grades which hold a premium to heavier sour grades that require more sophisticated processing.
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]