By Brian L. Milne, Energy Editor, Schneider Electric
In financial trading for gasoline, the New York Mercantile Exchange RBOB futures contract with nearest delivery erased in short order a late December advance that peaked at a $2.8463 gallon 3-1/2 month high the day following Christmas in early trading in 2014 on sentiment gasoline demand would slow in the U.S. during the first couple of months of the year following greater demand during the holidays.
On Jan. 3, the futures contract traded 20cts less than the late December high at a $2.6462 gallon two-week low. Technical support is found at the $2.6152 gallon low plumbed in December with long-term support marked at the $2.4945 low for 2013 registered in November.
Supplier postings at distribution terminals moved lower during the week ended Monday (1/6), with a further decline in rack postings expected amid sharp losses in the spot market in early trade in 2014.
Heading into the holidays, gasoline futures had rallied on unseasonably robust demand for the fourth quarter and supply drawdowns amid seasonal maintenance. Gasoline supply is again building while demand dipped in the closing days of 2013. Preliminary data from the Energy Information Administration (EIA) shows gasoline demand 124,000 bpd or 1.4% higher in 2013 than in 2012.
Seasonal weakness for gasoline consumption should continue to weigh on supply costs, although growing imports should underpin demand. The EIA indicated gasoline exports in late December jumped to 498,000 bpd from 363,000 bpd, with much of this supply headed towards Mexico and other Latin American countries.
Exports of diesel fuel and other distillates offer another dynamic for the gasoline market, with strong global demand for the middle of the barrel prompting US refiners to ramp up output of distillates. Exports of distillates from the U.S. averaged more than 1.3 million bpd throughout the fourth quarter EIA shows.
Refiners are gradually shifting the yield toward higher distillate output to take advantage of growing global demand, with EIA showing distillate output in early December at a record high above 5.0 million bpd, nearly repeated in late December. However, processing still creates gasoline, with this trend expected to add more gasoline supply than needed for the domestic market in 2014 when combined with imports.
European refiners, with the continent previously shifting towards a diesel base load in transportation fuels and away from gasoline, has shipped surplus gasoline to the U.S. Combined with heightened supply from refiners in Asia, some analysts expect the US to become a dumping ground for gasoline this year, weighing on costs.
Fourth quarter 2013 gains in gasoline demand were made possible, analysts have said, on better growth for the US economy, which slow walked a recovery following the Great Recession that ended in June 2009. In fact, sentiment for the US economy in 2014 has shifted to a greater degree of optimism following a string of indicators late 2013 showing growth. The improving sentiment can act as a double-edged sword for market bulls, however.
Case-and-point is the Federal Reserve’s monetary stimulus efforts, with the Fed this month paring back its $85 billion bond buying program by $10 billion, which has pumped money into the economy and juiced equities while weakening the dollar. A quicker recovery for the US economy could prompt the Fed to cut back on its purchases even more, pressuring domestic oil prices. The December US nonfarm payroll report due out from the Department of Labor Jan. 10 will be the next key signpost on possible Fed direction, with the market anticipating the jobless rate to remain unchanged at 7% with the US economy having created 195,000 jobs last month.
Although there are several factors influencing the price downside in early 2014, commercial players in the market should remain mindful of the preseason rally for gasoline, which has come earlier each year. For 2013, the year’s high was registered at $3.2672 gallon March 11, well before summer demand. Such a rally would boost gasoline costs on projections, potentially brushing off bearish seasonal factors.
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 18 years as an analyst, journalist and editor. He can be reached at [email protected]