By Brian L. Milne, Refined Fuels Editor for DTN
Across the country, gasoline prices are marching higher into June on a combination of tight supplies in some regions and a broad-based rally by gasoline and crude oil driven by a growing view that the U.S. economy is improving.
Nationally, the average for regular grade gasoline surged to a seven-month high of $2.435 per gallon on Memorial Day, the celebrated kickoff for the U.S. driving season, and will advance from there in early June.
Increasingly, broad-based indicators show that the U.S. economy is not worsening that, in turn, is being viewed as an improving economy. Since energy demand including fuel consumption is linked to the economy, improving economic conditions suggest greater demand for energy and gasoline.
As such, financially traded crude oil and gasoline contracts are following the rally in the stock market, which is seen as a forward indicator for the economic health of the country, higher.
Oil analysts note the precarious nature of the price surge in crude oil and gasoline however, not expecting the higher prices to endure. Higher crude and gasoline prices defy supply-and-demand data, which show crude supply holding at a 19-year high in the U.S., while preliminary data has gasoline demand trailing 2008 by 0.6%.
Meanwhile, history shows that gasoline consumption has consistently declined when unemployment climbs, and data due out June 5th is expected to show that unemployment increased from 8.9% in April to 9.2% in May.
Supplies Tightening
Regionally, some markets are tight supply, notably the Midwest. Low supply in the Chicago and Detroit markets has pushed gasoline pump prices up sharply in late May, with additional costs absorbed in the wholesale market still headed for retail outlets.
Reports show gasoline for these markets are being pulled from Texas, Louisiana, and Oklahoma, to add to existing regional supply to help offset low inventory levels.
Drivers in California, are also seeing a rapid ascension in their retail prices, with more gains on the way. Gasoline supply in the state is lower than a year ago, but refiners have been ramping up production to bring inventory levels into better alignment with demand.
Amid this output ramp up however, an oil refinery serving the San Francisco market lost a production unit in late May, immediately driving wholesale costs for the Bay area sharply higher. The higher prices are still moving to retail outlets this week.
About the author
Brian L. Milne is the Refined Fuels Editor for DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at [email protected].
