By Brian L. Milne, Energy Editor, Schneider Electric
The national average price for regular grade gasoline increased for eight weeks straight through Mar. 31 according to the Energy Information Administration, reaching a nearly seven-month high at $3.579 gallon, and there’s more upside to go. With limited exception, wholesale gasoline costs in major metropolitan markets across the U.S. moved higher during the first full week of April, with the higher costs being passed through to retail.
Although steadily increasing, consistent with the commodity’s seasonal pattern, the current outlook suggests the upside in retail gasoline prices is nearing a ceiling. This forecast comes despite the national average remaining 6.6 cents less than a year ago, while the longer-term outlook envisions lower gasoline prices this year than last, and for that trend to continue over the next few years.
On Apr. 2, the New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending futures contract slumped to a $2.8252 gallon one-month low on the spot continuation chart, with the gasoline contract coming under pressure from lower Brent crude oil prices and a market doubting the veracity of U.S. economic growth.
Brent crude futures, which trade on the Atlanta-based IntercontinentalExchange, are a global price marker for crude oil and used by U.S. suppliers in determining pricing for U.S. products like gasoline and diesel fuel. The Brent contract slid to a $103.95 bbl six-month low on the spot continuation chart Apr. 2, pressured by higher supply prospects, namely from Libya where an expected deal between the government and militia forces was set to unlock crude exports from the North African nation that have largely been blocked since July 2013.
Brent crude futures were also pressured by data showing slowing economic expansion in China and concern over the European Union, while a revanchist Russia lurks to the east. In the U.S., the Apr. 4 nonfarm payroll report from the Department of Labor showed 192,000 new jobs were created in March, but that was less than the 200,000 the market expected, while wage growth showed stagnation. These findings prompted risk-off trade in equities, whereby investors seek more secure investments, while in the oil patch analysts consider the negative knock-on effect for oil demand.
Of course, the many moving parts to the oil market leaves it vulnerable for an upside price push.
A recent survey from AAA found U.S. consumers have grown to accept higher gasoline prices, with less drivers looking for ways to avoid these costs by driving fewer miles. Previous studies have already shown gasoline demand in the U.S. is no longer inelastic, meaning the commodity is a dependency and pricing has little effect on actual consumer behavior.
The relatively recent trends come alongside a generational change in the U.S. consumer, with younger drivers, less intrigued with getting behind the wheel than their parents, charting a dynamic course towards less dependence on the automobile.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a global specialist in energy management. Milne has been focused on the energy industry for 18 years as an analyst, journalist and editor. He can be reached at [email protected]