Wholesale gasoline costs were mixed in major metropolitan markets across the U.S. during the first week of November, while the broader trend is moving higher despite poor demand for gasoline. Should current dynamics hold, we could see the Energy Information Administration’s (EIA) U.S. retail gasoline average moving higher into the Thanksgiving holiday from a four-week low of $3.452 gallon plumbed on Halloween.
Regional supply-demand dispositions are impacting wholesale markets, with markets in the Chicago and surrounding region surging on Nov. 4 amid an unannounced refinery outage in Indiana. The unconfirmed outage had initially pushed ultra-low sulfur diesel fuel higher in spot trading in Chicago, and is now rallying gasoline in the Windy City.
A number of refiners across the US have already concluded seasonal maintenance, which is typically timed to coincide with the shoulder periods—the seasons between peak winter demand and peak summer driving demand—of spring and autumn. Seasonal maintenance can include relatively short periods of production downtime, or extend for weeks amid heavy maintenance in what are called turnarounds.
Refiners routinely prepare for planned maintenance, which could be scheduled years in advance, by building up their inventory to ensure they meet their contractual obligations with customers. Refiners can also buy product in the spot market to cover shortfalls, with this activity more likely during unexpected outages that can push wholesale costs sharply higher, which are usually brief events.
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Gasoline demand remains weak however, with preliminary data from the EIA showing implied demand down 1.4% during the first 10 months of 2011 against the comparable year-ago period. In late October, implied gasoline demand fell to a seven-year 10-month low.
High unemployment remains a drag on gasoline consumption not only because there are fewer commuters to and from work, but also due to the psychological impact, with those with jobs conserving as they question the durability of their jobs.
On Nov. 4, the Department of Labor said the national unemployment rate dipped to 9.0% in October from 9.1% in September. It was welcome news but does little to relieve a persistent high jobless rate, which has fluctuated between 9.0% and 9.2% since April.
The Federal Open Market Committee, which includes Federal Reserve members and governors of regional banks, concluded their early November meeting by downgrading their June projections for economic growth and employment through 2013. The FOMC is calling for the national jobless rate to average at 9.0% to 9.1% this year compared with its June forecast for an 8.6% to 8.9% reading, while projecting a 2012 US unemployment rate to average between 8.5% and 8.7% versus its June estimate of 7.5% to 8.2%.
Such an outlook doesn’t bode well for marketers looking to hike gasoline volume over the coming months. However, gasoline prices will continue to be guided by climbing demand from emerging countries that will support higher costs for crude oil, thereby lifting prices domestically.
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]