Brian L. Milne Refined Fuels Editor, Telvent DTN
After 13 consecutive weeks moving lower, retail gasoline prices snapped the decline, gaining during the first full week of July. Moreover, retail gasoline prices are in position to again increase, while the July 2nd six-month low in the Energy Information Administration’s (EIA) U.S. average might hold for the balance of the summer.
The EIA’s retail gasoline price average for all formulations of regular grade rose 5.5 cents to $3.411 gallon for the week-ended July 9. Meanwhile, the nearby delivered RBOB (reformulated blendstock for oxygenate blending) gasoline futures contract that trades on the New York Mercantile Exchange shot up to a six-week high on July 13, while gaining 10 cents on the week.
The futures contract is indexed against in spot market trading, with spot prices representing the value of gasoline moving from refineries and docks where imports are received to wholesale distribution terminals. Spot gasoline prices also advanced during the week-ended on July 13, pushing next day wholesale rack postings higher.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
Supporting the market advance are growing expectations for additional government stimulus efforts, both from China and the U.S.—the world’s two largest economies and greatest oil consumers, and tightening sanctions against Iran.
Initially disappointed after minutes to June’s Federal Open Market Committee meeting released on July 11 showed dissenting views on deploying another round of easing monetary policy with no immediate action seen in the works, market expectations were again rebuilt that the Fed would take action nonetheless. Some suggest Federal Reserve Chairman Ben Bernanke could offer clues as early as this week when he provides testimony to Congress on Tuesday and Wednesday.
And in a telltale reaction to the force of anticipated government action, markets rallied Friday (7/13) after China reported second quarter Gross Domestic Product growth of 7.6%, down from 8.1% in second quarter 2011, and the slowest growth rate for China since during the recession three years earlier. However, the market now expects the slower growth rate to spur China to take additional steps to sustain a higher growth, which comes on the heels of two recent cuts in bank lending rates.
The U.S. Treasury also announced tougher sanctions against Iran last week, with the new sanctions aimed at third parties doing business with Iran. The additional US sanctions follow the full implementation of sanctions by the European Union against Iranian oil imports on July 1, and come on the heels of reports that Iran has been taking measure to dodge sanctions. The efforts by the OPEC member include repainting oil tankers to camouflage their true identity in an effort to evade sanctions, which are having a negative impact on Iran’s output.
“Iranian crude oil output has fallen to a 20-year low below 3.0 million bpd. The start of EU sanctions seems to have been accompanied by a fall in Iranian exports to 1.0 million bpd or below, less than half their 2012 average level,” according to a note to clients from Barclays Capital released on Friday.
Absent an economic meltdown, gasoline prices will likely move higher through the balance of the summer.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for 16 years as an analyst, journalist and editor. He can be reached at [email protected].
