By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices made sharp gains in late July, early August, and there’s more upside left in the cash market, which will filter through to retail outlets across the U.S. Absent a steep selloff, retail gasoline prices are poised to move higher in most U.S. metropolitan retail markets through Labor Day—the three-day holiday typically linked with the end of the summer and slowing deriving demand.
A host of features converged to drive gasoline prices higher in early August, including supply tightness in several regional markets, notably in the Upper Midwest and New York Harbor. An early August fire at a Tulsa refinery operated by HollyFrontier also boosted gasoline prices in the broader Oklahoma regional market. Spot market gasoline prices along the West Coast also moved up during the July-to-August transition while gasoline supply was drawn down sharply.
Favorable Jobs Report
In the futures market, nearby delivery New York Mercantile Exchange RBOB (Reformulated Blendstock for Oxygenate Blending) rallied to a better than two-month high in closing out the week on Aug. 3, with the rally driven in part on better than expected jobs report. The employment report suggested the economic recovery in the U.S. is continuing, spurring expectations for greater demand for fuels.
The Department of Labor, through its Bureau of Labor statistics division, reported 163,000 new jobs were created in July, well above the 80,000 to 100,000 expected. It was the fastest pace in job growth since February, and sparked a rally in oil prices as well as equities.
RBOB futures were also up on technical spread buying, with noncommercial participants bidding up gasoline prices while selling crude during one of the busiest months for driving in the US. The supply tightness in several regional markets also goosed buying interest.
Geopolitical tension in the Middle East was another price driver, as the war within Syria escalates with unknown consequences while the US imposed even more sanctions on Iran, a member of the Organization of the Petroleum Exporting Countries. The sanctions, with the latest aimed at punishing companies that do business with Iran, are meant to dissuade Tehran from pursuing a nuclear capacity that many in the West believe are an effort to build a nuclear weapon. Iran denies this allegation, saying their nuclear work is for peaceful purposes.
Both the Federal Reserve and European Central Bank failed to announce either stimulus measures or long-term debt solutions during much anticipated press conferences on Aug. 1 and Aug. 2, respectively.
The ECB’s president, Mario Draghi, was the headline event during a very busy week after promising in late July to take whatever steps necessary to preserve the euro. The buildup had the market positioned for an announcement of bold new measures to combat the prolonged sovereign debt crisis in the euro zone, especially for Spain and Italy. However, Draghi’s Aug. 2 news conference offered no such announcement; with some saying the plans offered by Draghi were another example of “kicking the can down the road.”
On the watch list for oil market followers is the Chicago market, which has experienced multiple refinery outages after the region was operating at near full tilt, 98.9% of installed operating capacity during the week-ended July 27 per Energy Information Administration data. Also impacting the area is a shut crude line in Wisconsin that delivers supply to these area refineries after a leak in late July. Enbridge, the operator of the pipeline, said the pipeline has been repaired but can’t restart deliveries until it receives approval from the Pipeline and Hazardous Materials Safety Administration, a division of the Department of Transportation. PHMSA has taken a tough stance with Enbridge over the leak, and there were no estimates at the time of this writing as to when the regulator would grant approval.
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]