By Brian L. Milne, Energy Editor, Schneider Electric
U.S. retail gasoline prices fell to an 11-month low in early December as building inventories and weak demand again pressured wholesale costs, with the Energy Information Administration’s (EIA) weekly retail average for regular grade gasoline down in eight of the last nine weeks to $3.349 gallon.
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Even though remaining historically high for the time of year, sliding gasoline prices are providing a break to consumers just in time for the holidays, when retailers hope the savings will ring up as higher sales. For gasoline outlets, the travel advisory group AAA projects a surge in traveling in the U.S. this holiday season, forecasting 93.3 million Americans would travel 50 miles or more from home between Dec. 22 and Jan. 1, up 1.6% from last year. If realized, holiday travel would come within a half a million of the decade high established pre-recession during the 2006/2007 season.
“The year-end holiday season remains the least volatile of all travel holidays as Americans will not let economic conditions or high gas prices dictate if they go home for the holidays or kick off the New Year with a vacation,” AAA President and CEO Robert Darbelnet.
AAA estimates 84.4 million or 90% of travelers would travel by automobile this holiday season, up 1.1 million or 1.3% from last year. If correct, holiday travel would boost gasoline demand which has trailed the 2011 period this year through early December by more than 3%, EIA data shows.
As it nears an end, 2012 was a strange year for U.S. fuels, a year when high gasoline costs and sluggish economic growth limited road travel. In its most recent Short-term Energy Outlook, the EIA projects a 20 cents decline from an estimated 2012 $3.63 gallon average for regular grade gasoline next year, with the forecast predicated on lower global crude oil prices. Crude oil accounts for the majority of the costs for gasoline, last measured at 64% of those costs.
There was a 30-cent decline in the monthly average for retail gasoline from October’s $3.75 gallon, with pump prices along the West Coast tumbling 79 cents from a $4.41 gallon average on Oct. 8 to $3.62 on Dec. 3. Regional gasoline stocks were built up during the period after drawn down on a series of refinery outages. For Central Atlantic states, where some parts of the region are still recovering from a destructive Hurricane Sandy, gasoline prices are down 32cts during the same time period.
Nationally, gasoline supply increased 16.7 million barrels or 8.3% to a 217.1 million-barrel eight-month high during the four weeks through the first week of December. In early October, gasoline supply had been drawn down to a 195.4 million bbl four-year low.
While trending lower, gasoline prices did get a boost off better than one-month lows after the Federal Reserve announced to what amounts as QE4, which refers to the central banks efforts to spur economic growth by relaxing monetary policy in what is called quantitative easing. The Fed announced in early December it would spend $45 billion monthly in purchasing longer-term Treasury securities “to support a stronger economic recovery,” which comes atop of an existing $40 billion of monthly spending by the central bank for mortgage-backed securities.
“Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” said the Fed in a Dec. 12 news release announcing the latest stimulus efforts.
Such an action tends to weaken the U.S. dollar, which fell to a two-month low following the Fed announcement, with a weaker greenback having an inflationary effect on oil prices. Should Washington avert the “fiscal cliff,” a term initially used by Fed Chairman Ben Bernanke in describing automatic tax increases and government spending cuts legislated in the Budget Control Act of 2011 that takes effect Jan. 1, 2013, some analysts think markets could rally early next year.
The Fed action came alongside data showing China’s industrial output again growing after stagnating for much of 2012 while the country’s new ruling party is seen spending heavily on its infrastructure in their efforts to embark on urbanization. The US and China have the world’s two largest economies and also rank as the top two consumers of oil.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at [email protected]