By Brian L. Milne, Energy Editor, Schneider Electric
The American Petroleum Institute (API), the Washington, DC-based trade organization for the oil and gas industry, on Jan. 18 said at 8.7 million bpd U.S. gasoline deliveries in 2012 fell to their lowest level in 11 years, while down 0.4% compared with 2011. During 2012, gasoline demand was down against the 2011 consumption rate for seven months.
This year through Jan. 11, the Energy Information Administration (EIA) shows gasoline supplied to market up 1.9% at 8.227 million bpd compared with the same period in 2011, although the implied demand rate is down 5.9% against the five-year average. Prevailing high unemployment, ongoing sluggish economic growth along with more fuel efficient vehicles are cutting down gasoline demand.
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Consider that the Federal Highway Administration shows, cumulative travel for the first eleven months of 2012 (the most recent data available) at an estimated 2,702.9 billion miles was 16.7 billion miles or 0.6% higher than the comparable 2011 period.
Nonetheless, the market is ratcheting higher its interest in gasoline futures, the Reformulated Blendstock for Oxygenate Blending futures contract traded on the New York Mercantile Exchange, with noncommercial market participants or speculators since they are not hedging an underlying physical position, moving to a nine-month high net-long position through Jan. 15. A net-long position is taken when the expectation is for prices to move higher.
Part of this bullish sentiment is due to the pre-season rally for gasoline leading up to peak demand during the summer months. The price run-up on the anticipation for greater demand during the summer has started earlier in recent years, with the annual peak for the futures contract also coming earlier. In 2012, nearby delivery RBOB futures peaked on March 29 at $3.4455 gallon, although challenged in late September expiry trade with a $3.4258 high amid a string of refinery outages.
Several recent data points suggest both the U.S. and Chinese economies doing better than some had expected, with the two countries the world’s number one and two largest oil consumers. In the U.S., improving data on jobs and housing lifted market sentiment. The International Energy Agency recently hiked its projection for global oil demand growth in 2013 by 240,000 bpd primarily on expansion expectations from China.
Economic growth drives greater energy demand.
Add to this heightened geopolitical risk following the recent terrorist attack at a gas field in Algeria and near Libya, both members of the Organization of the Petroleum Exporting Countries, and prices are headed higher. NYMEX WTI crude futures are now forecast to top $100 bbl in the near term, with the nearby delivery contract last topping the century mark for one day in September at $100.42 bbl. Before that, NYMEX crude futures traded above $100 bbl in early May 2012. Higher crude costs would spur higher prices for gasoline.
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].