by Brian L. Milne, Refined Fuels Editor, Telvent DTN
Even with the rapidly approaching July 4th holiday, with holiday travel seen near the 2007 record this year, retail gasoline prices are continuing to decline as economic expansion cools and US unemployment remains high.
Price watchers should expect the Energy Information Administration to report its twelfth consecutive weekly decease in its US average price estimate for regular grade gasoline, with the average at $3.533 gallon as of June 18. Since reaching a 2012 high on April 2 at $3.941 gallon, the average is down 40.8cts or 10.4%, while 11.9cts lower than during the comparable year-ago period.
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A raft of data sets show the US economy remains sluggish, with the Bureau of Economic Analysis expected to again revise lower annualized first quarter Gross Domestic Product from 1.9% to 1.7% in its third and final update on June 28 which follows a previous downward revision from 2.2% by BEA. The Federal Reserve also dialed down its GDP expectations. The US unemployment rate remains stuck above 8.0%, with the Labor Department last reporting the national jobless rate at 8.2% for May.
Markets had pinned hopes that Fed Chairman Ben Bernanke would announce a fresh stimulus measure through monetary policy in what would be called Quantitative Easing 3 at the conclusion of its June 19-20 meeting, with QE1 and QE2 each having an inflationary effect on US oil and gasoline prices. However, the central bank did not do so and the markets sold off hard.
The thinking was with the economy showing a slowdown and unemployment high that the Fed would take action. Without that lifeline of new money being injected into the money stream, market participants focused on euro zone issues, a slowing global economy and bearish market fundamentals. US crude supply is hovering near a 22-year high while preliminary data from the EIA shows gasoline demand down 5.1% this year versus the same period in 2011.
AAA offers those moving gasoline signs of hope, with the travel group projecting 42.3 million Americans would travel 50 miles or more from home during the Independence Day holiday, a 4.9% increase over the 40.3 million people who traveled last year. If realized, the expected travel volume this year would tie the past decade’s previous high mark set in 2007 and represents a near 42% surge in travel for the holiday from 2009.
“AAA’s projection for a decade high number of Independence Day travelers is being fed by Americans’ appetite for travel, a mid-week holiday and lower gas prices,” said Bill Sutherland, vice president, AAA Travel Services. “This is the second holiday this year where travelers indicated a determination to travel while economizing by actively seeking value-added travel options and activities.”
Since July 4 falls on a Wednesday, the calendar will play a role in driving holiday travel volumes as the midweek holiday expands the traditional five-day travel period to six days, and provides the option of including a weekend and two week days on either side of the actual holiday.
Wholesale gasoline prices were down sharply in several metropolitan markets through the week, pressured by a steep decline to a seven-month low by the benchmark New York Mercantile Exchange RBOB (Reformulated Blendstock for Oxygenate Blending) futures contract. The declines were far from uniform however, with Cleveland wholesale gasoline costs down more than 20cts on the week compared with less than a nickel for Chicago. New York City wholesale gasoline prices increased on tight RBOB supply for the metropolitan market, with RBOB a reformulated gasoline required for use in parts of the country not in compliance with the Clean Air Act.
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]