By Brian L. Milne, Energy Editor, Schneider Electric
Wholesale gasoline costs were mixed with a downside bias for the week-ended Monday (7/29), pressured by a selloff in New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending futures from a four-month registered July 19. The mostly lower wholesale costs won’t, however, translate into lower retail prices for all markets as pass through costs from the July price surge continue to move through the supply chain to retail outlets.
The Energy Information Administration (EIA) last reported their national average for regular grade gasoline sold at retail outlets at a $3.684 gallon four-month high through the week-ended July 22, which is 19 cents higher than a year ago. The average surged 19.2 cents during the two weeks ended July 22.
The U.S. average is up 25.4 cents since June 24 although nearest delivered NYMEX RBOB futures surged 47.62 cents or 17.7% from a June 26 low to the July 19 high at $3.1632 gallon before dropping back, trading just above $ Monday. This implies more upside for the retail average.
View Schneider Electric’s Weekly and Historical Fuel Price Index.
Oil markets remain mixed, finding support from geopolitical tension amid conflicts in the Middle East and Africa, and generally positive data points for the U.S. economy, including a jump in consumer confidence in July to a six-year high according to the University of Michigan survey.
Weighing on oil prices are expanding supply, with U.S. crude production near a 25-year high in late July, and sluggish world economic growth that raises questions for oil demand. A slowdown in China’s economy and Beijing’s recently announced efforts to mop up surplus industrial output furthered the bearish implications for global oil demand, with a large portion of an expected increase in world oil consumption seen generated by the world’s second largest economy.
The Federal Open Market Committee conducts a two-day policy meeting Tuesday and Wednesday (7/30-31), which will be watched closely for clues for when the central bank will taper off stimulus efforts. Those efforts by the Fed have underpinned the upside in oil prices, with news of an end to stimulus efforts likely sparking a selloff in oil futures. Such a scenario is discounted for this week, but could make trading volatile.
The Fed’s meeting ends shortly before the expiration of the August RBOB contract, with September delivery taking over as nearby delivery for Aug. 1 trading. The September contract was trading at a roughly 4.0cts discount to August delivery.
The most recent data from the Commodity Futures Trading Commission shows noncommercial traders revved up a net-long position to a better than three-month high for the week-ended July 23, with open interest for the contract climbing to a one-month high. This added demand in paper trading lent upside support for RBOB futures. However, we could see noncommercial traders, also known as speculators since they don’t have an underlying physical position in the market liquidate long positions as summer’s end comes into focus. Hurricane activity over the next few weeks would likely mitigate this expectation.
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]