Even as the U.S. crude price benchmark comes within pennies of $100 barrel, wholesale gasoline costs moved sharply lower, down by double digits in numerous major metropolitan markets across the country during the second full week of November. Partly explaining the disconnect is weak demand for gasoline, which recently sunk to near an eight-year low when considering weekly data from the Energy Information Administration.
As noted in previous comments, high unemployment historically has limited demand for gasoline in the U.S. The Labor Department did report a slight decline in the US unemployment rate for October at 9%, but the national jobless rate has held a tight 9% to 9.2% since April, and analysts are largely of single mind that it will take years to meaningfully reduce the number of unemployed.
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Gasoline costs are tumbling just as costs for diesel fuel are surging amid what analysts call a tight global market for distillates. Also in contrast to gasoline, demand for diesel fuel has surged recently while exports from the U.S. hover near one million barrels per day. Supply of distillate fuels in the U.S. is running well below the five-year average.
Typically you would see distillates, which include heating oil as well as diesel, moving higher this time of year while gasoline slides. The spread between the two fuel types has blown out to a three-year high on its way to setting a record.
Despite sliding wholesale gasoline costs, the EIA recently updated its monthly outlook on the energy markets that included a two cents upward revision in its expected US retail gasoline average for this year to $3.54 gallon, which compares with a $2.78 gallon 2010 average. Higher crude prices along with an increase in refining costs, which are up 14 cents gallon this year from 2010, are factors cited by EIA in assigning their estimate.
Meantime, EIA anticipates on-highway diesel fuel retail prices will average $3.84 gallon this year, four cents higher than October’s estimate and 85 cents higher than the 2010 average of $2.99 gallon.
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 brian.milne@telventdtn.com.
