By Brian Milne, energy editor, Schneider Electric
Sliding retail gasoline prices continue to bolster gasoline consumption in the United States, with preliminary data showing gasoline supplied to market in late October at a two-month high near 9.35 million barrels per day (bpd).
Moreover, if the fourth quarter of 2014 is any guide, gasoline demand will remain strong through year end, albeit below summer highs.
To grasp the significance, there were only a half dozen weeks post August from 2011 through 2013 in total that gasoline demand topped the 9 million bpd benchmark, data from the Energy Information Administration shows, while in 2014 it peaked during the final week in December at 9.614 million bpd as pump prices were in freefall.
This year, EIA shows gasoline demand reached a 2015 high in mid-July at 9.749 million bpd that was also an eight-year high. Implied gasoline demand in 2015 through Oct. 23 is 352,000 bpd or 4.0% higher than the comparable year-ago period, while up 3.4% in the most recent four-week period.
Greater driving demand has been spurred by declining retail prices, with the EIA’s U.S. average for regular grade sliding to a nine-month low at $2.262 gallon in late October, with the current 2015 low reached in late January at $2.069 gallon. That compares with a year-ago national average at $3.094 gallon.
The retail average is likely to turn up in early November following a late October short covering rally by the gasoline (RBOB) futures contract traded on the New York Mercantile Exchange, which spiked a little more than a dime or 8% during the final week of October to a better-than two-week high at $1.4050 gallon. The price advance followed a decline by the contract to a $1.2484 gallon nine-month low on the spot continuation chart earlier in the month.
Technical factors and expectations low prices would continue to spur demand boosted the futures value, which immediately bled into the primary spot wholesale market that would, in turn, bolster supplier wholesale prices in the secondary wholesale market at the terminal before reaching retail outlets.
Expectations remain that the US average price for retail gasoline will sink through year end and test the psychologically important $2 gallon benchmark. However, the savings might again pass by consumers along the West Coast, where a short-product market has bedeviled consumers since late February with the loss of a gasoline producing unit at ExxonMobil’s 155,000 bpd Torrance refinery due to an explosion. The refinery located just south of Los Angeles and since sold to independent refiner PBF Energy continues to operate at less than full capacity.
The EIA, citing data from Industrial Info Resources, indicates 17% of the West Coast’s fluid catalytic cracking unit capacity will be offline in November compared with 1% or less for the rest of the country. FCC units produce gasoline, suggesting the West Coast market will remain tight on supply.
EIA shows the retail average for regular grade gasoline in California at $2.847 gallon in late October, down 54.3cts from the comparable year-ago period and below the $3.897 gallon high for the state averaged in July.