By Brian L. Milne, Energy Editor, Schneider Electric
Although wholesale costs gained sharply Aug. 9 due to a late week rally by the benchmark futures contract, the trend for gasoline prices is pointed down for the rest of the summer unless some unexpected event, such as shut refining capacity, a geopolitical flare-up, or hurricane frustrate the forecast.
Futures traders are now focused on September gasoline deliveries, with the New York Mercantile Exchange September RBOB futures contract now nearest delivery after the August contract expired July 31. September RBOB—the acronym for Reformulated Blendstock for Oxygenate Blending—declined for six straight sessions since becoming nearest delivery Aug. 1, rallying Aug. 9 on short covering after heavy selling through the week. NYMEX RBOB futures fell to a five-week low on the spot continuation chart Aug. 8 before the rally.
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Economic data released the first full week of August was mostly bullish, including a surge in industrial production, imports and exports by China in July, with China the world’s second largest economy. China’s economy had slowed earlier in the year, prompting concern global oil demand would decline as a result. We also learned China is set to top the U.S. as the world’s largest importer of oil as early as October, part of a structural shift realigning global trade patterns for oil and natural gas.
Yet, with the end of summer quickly coming in view, futures traders are looking ahead to lower demand after peak seasonal driving during the warmest months of the year. Historical data shows gasoline demand always declines in September from August.
This summer has seen robust demand for gasoline based on preliminary data from the Energy Information Administration (EIA). Implied demand has reached or topped the five-year average for three weeks this summer compared with one during the summer of 2012 and three for the full year—once in August, and twice in November. During the four weeks ended Aug. 2, implied gasoline demand was a sharp 289,000 barrels per day (bpd) or 3.3% above the comparable period in 2012.
For the year-to-date, gasoline demand is up 58,000 bpd or 0.7%. Also, EIA said its recent implied demand data might be overstating the actual consumption rate because of the export data used, which is provided by the Commerce Department and updated monthly but used in the weekly calculations.
The EIA reported Aug. 5 its weekly U.S. gasoline average for regular grade gasoline slipped to a $3.632 gallon one-month low. On Aug. 6, EIA released it Short-term Energy Outlook for August, with the statistical division of the Department of Energy revising up its forecast for the average for all of 2013 4 cents to $3.52 gallon due to higher crude costs over the summer. That compares with a 2012 average of $3.63 gallon, while EIA expects the downside trend to continue next year, forecasting a $3.37 gallon national average for 2014.
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].