The U.S. retail price average for regular grade gasoline reported by the Energy Information Administration (EIA) reached a five-week high at $3.299 gallon in beginning 2012, and is set to notch its third straight weekly increase amid higher wholesale costs.
Several factors continue to drive gasoline prices higher despite ongoing weak demand, with preliminary EIA statistics showing gasoline delivered to markets in 2011 1.9% lower than in 2010 while down 4.9% in December against year prior.
Feared supply disruptions for both global crude and finished products have been a primary concern in early January, highlighted by a belligerent Iranian government that has threatened to close the Strait of Hormuz over expected sanctions aimed at its oil exports. Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), was the world’s third largest oil exporter in 2010 behind Saudi Arabia and Russia.
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The sanctions were called for by France, with the European Union and U.S. set to target Iran’s central bank in response to Iran’s pursuit of nuclear weapons, although Tehran has repeatedly said its nuclear ambitions are peaceful. Reports indicate the U.S. is heavily pressuring other countries such as Japan to embargo Iranian oil imports.
In response, the Iranian navy has conducted military exercises in the Persian Gulf, and has plans to conduct more of these exercises in the Strait of Hormuz—a critical shipping lane were nearly 17.0 million bpd of oil passed though in 2011. The strait connects the Persian Gulf with the Gulf of Oman, while bordering Iran. Its narrowest width is 21 miles.
Press reports out of Iran indicate Tehran has given its approval to close the strait should western nations implement their sanctions on Iranian oil exports. The U.S. said it would take action if the Hormuz Strait were closed, calling it an international waterway. Meanwhile, separate reports indicate that Iran has begun enriching uranium.
Oil exports from Nigeria, also a member of OPEC, are threatened by massive strikes across the country in response to the end of fuel subsidies. Despite being Africa’s third largest oil producer, Nigeria is a poor country. The end of the fuel subsidies was part of the new government’s strategy to increase subsidies for other endeavors, such as agriculture.
Meanwhile, European refiner Petroplus said it was forced to close three of its refineries in Europe after losing its line of credit. Market watchers fear that those shutdowns alongside the planned permanent closures of three refineries in Philadelphia, Pa., will tighten up Trans-Atlantic supply, which is currently having a greater upside price impact on diesel and heating oil price.
Meanwhile, some market observers see a more prosperous year for the US economy in 2012, supported by the Department of Labor’s nonfarm payroll report for December showing the national jobless rate dipped to 8.5%, a three-year low. A growing economy uses more fuel.
Limiting the upside for gasoline prices, with US crude prices holding above $100 barrel, is concern over the euro zone debt crisis. Several analysts believe Europe will slip into recession this year, if those economies haven’t already begun to contract.
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 16 years as an analyst, journalist and editor. He can be reached at [email protected].
