By Brian L. Milne, Refined Fuels Editor, Telvent DTN
While mixed, wholesale gasoline prices mostly increased in major metropolitan markets across the U.S. during the third week in January, setting the stage for another increase in the U.S. retail average, which increased for the fifth consecutive week through Jan. 16.
The Energy Information Administration (EIA) reported a 0.9 cents increase in its retail price average for regular grade gasoline to $3.391 gallon—a nine week high, as of Jan. 16.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
Interestingly, gasoline prices are advancing while data from the EIA shows implied demand tumbling to its lowest weekly rate since September 2001 during the week-ended Jan. 13. The American Petroleum Institute trade association said on Friday (1/20) that total motor gasoline deliveries for 2011 fell 2.1% from the prior year—the second largest year-over-year decline since 1980. API also said their data showed that gasoline supplied to market in December fell to a 13-year low.
“The weakness in gasoline demand in 2011 reflected the overall weakness in consumer spending,” said API Chief Economist John Felmy. “This carried through the year, with retail sales down in December and gasoline demand slipping more than 4% for the month.”
Earlier this month, analysts with the EIA also pointed to an aging U.S. population that drives less and more fuel efficient vehicles on our highways that have cut into gasoline demand, which peaked in the U.S. in 2007.
Feared supply disruptions have been a key factor in supporting higher oil and gasoline prices, as too has expectations for a rebounding US economy this year. Moreover, even though U.S. demand is flagging, global demand led by emerging economies continues to grow, which underpins higher oil prices.
On Jan. 18, Hess Corp. said it would permanently close its Hovensa refinery in St. Croix in mid-February, converting the refinery that at one time had a crude oil processing capacity of 500,000 bpd into an oil terminal. The reason was dismal economics, with Hess saying the refinery has lost $1.3 billion over the past three years, with no end in sight for the fiscal bloodletting.
Hovensa has been a gasoline exporter to the U.S. East Coast for years, with news of the shutdown rallying the New York Mercantile Exchange RBOB (Reformulated Blendstock for Oxygenate Blending) futures contract to a three-month high.
The Hovensa shut down follows announcements in 2011 from Sunoco, Inc. that it would shutter its two refineries near Philadelphia, this summer absent a buyer for the facilities, with one refinery already shut. ConocoPhillips has also shut its Trainer refinery near Philadelphia, and plans to dismantle the facility in March should a buyer not be found.
Concern over the lost gasoline supply overshadowed weak gasoline fundamentals. Meanwhile, noncommercial market participants, also known as speculators since they don’t have an underlying physical position to hedge, are expecting higher gasoline prices. As of Jan. 17, the latest data available, they were at their greatest net-long position in RBOB futures, a stance that expects prices to move higher, in nearly one year’s time. Of course, this net-long position could trigger a wave of selling.
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].