By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Bucking the seasonal trend, the U.S. average for regular grade gasoline sold at retail outlets across the country will continue higher after the Labor Day holiday, increasing despite the end of the summer driving season when demand typically declines after peaking during the summer months.
There have been a host of factors driving gasoline prices higher through the summer, and those forces remain at work. Moreover, wholesale gasoline costs have not been fully priced at the retail pump yet, which can take a full eight weeks at times for the pass through costs to move through the supply distribution channel. Wholesale costs moved higher across most of the country coming into the final week of August.
Crude costs have been the primary feature in pushing up gasoline costs, with U.S. gasoline prices indexed against the Brent crude contract in spot trading in the U.S. instead of the West Texas Intermediate grade that is stored in Cushing, Okla. The Brent contract is currently considered a better price marker owing to limited takeaway capacity at the Cushing supply hub that has depressed WTI prices.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
Brent crude is sourced from the North Sea with extended maintenance at some of its offshore fields driving up prices. Another round of maintenance through mid-October is affecting 17% of North Sea production. Worries over Middle East tension, especially with Iran, as well as sanctions on Iranian oil have rallied Brent crude prices to more than $115 per barrel, while WTI prices have neared $100 bbl.
A rash of unexpected refinery outages this summer across the country, including shutdowns at some large plants important in supplying a number of regions, have rallied gasoline prices this summer when typically gasoline would be moving lower. On Saturday (8/25), an explosion at Venezuela’s massive 645,000-barrel-per-day (bpd) Amuay refinery, the largest refinery in the Western Hemisphere, combined with concern over the expected path of Tropical Storm Isaac converged to rally New York Mercantile Exchange RBOB futures to a $3.2050 gallon four-month high.
Goldman Sachs tells us the refinery exports 360,000 bpd of gasoline to the US East Coast. Venezuela indicates the explosion, which reportedly killed more than 40 people, occurred in a part of the complex that doesn’t produce fuels, anticipating a midweek startup of the facility.
Storm Watch
Tropical Storm Isaac has prompted a number of offshore oil production facilities to shut-in operations, as well as some refineries in Louisiana. It’s unclear how Tropical Storm Isaac, seen intensifying into a category 2 hurricane and hitting landfall on Wednesday (8/29), would impact holiday travel for the upcoming Labor Day weekend.
AAA Travel projects 33 million Americans will journey 50 miles or more from home during the Labor Day holiday weekend, a 2.9% increase from the 32.1 million people who traveled last year. Approximately 28.2 million people, or 85% of holiday travelers, will travel by automobile, a 3.1% increase over the 27.3 million people who took to the nation’s roadways in 2011.
Travel has increased with each holiday since the Great Recession, although this forecast was made in advance of Tropical Storm Isaac.
The US average for retail gasoline prices per the Energy Information Administration (EIA) increased for the seventh straight week through Aug. 20, climbing 38.8 cents or 11.6% since July 2 to $3.744 gallon—a three-month high. The average will continue to increase in early September.
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].
