Gas prices inching upwards
It’s the first week in several that there’s been a notable change in the national average, and even saying that is a push- but there’s likely more forward momentum to come in the week ahead, said Patrick DeHaan, senior petroleum analyst for gasbuddy.com.
The U.S. national average rose to $3.285 per gallon today, up from $3.266 per gallon a week ago as oil prices rose to over $99 per barrel late last week on economic optimism. By next Monday, it’s likely we see a national average in the $3.30 per gallon as higher oil prices filter down to retail pumps nationally.
Montana remains the cheapest state for gasoline, averaging $3.02 per gallon, while South Carolina comes in at $3.05 per gallon, Texas at $3.06 per gallon, Utah at $3.07 per gallon, and Oklahoma at $3.07 per gallon. These states have consistently seen low prices in the last few weeks thanks to lower gasoline taxes than average, as well as being located near key infrastructure.
Prices saw an ultra rare weekend jump throughout the Great Lakes, where prices in Ohio, Michigan, Indiana, Illinois, and Wisconsin saw jumps. Prices at my local station here in Chicago jumped 20 cents per gallon during the day Saturday, resulting in a price of $4.09 per gallon for the required premium grade my car needs- the first time in months I’ve paid over the $4 per gallon level.
While there’s nothing to say the spring run up in prices is here, it certainly looks that way. Spot gasoline prices, which influence wholesale prices, rose last week country-wide. Areas of California area already switching to summer gasoline, and refineries across the U.S. are beginning their maintenance, which results in less gasoline produced, which supports slightly higher prices.
Motorists across the country should be expecting slightly higher prices this week. “Will it last? It’s not a complete certainty yet, but last year, we did see prices begin to march higher in February, so be prepared,” DeHaan said.
As a thought experiment, consider the 2014 motor fuel market a pizza, divided conveniently into eight slices. If you stretch the metaphor, U.S. consumers have completed the cheapest slice of winter pie since 2010. But GasBuddy predicts that some much more expensive slice of gasoline pricing is imminent, with pump prices likely to jump some 15-40 cents per gallon between now and Easter Sunday.
This will come as a shock to local residents since gas has hovered at or below $3 in Great Bend for several weeks. This has been the case despite prices climbing elswhere in the state.
The lowest prices in Kansas were seen at Garden City with $2.92 at Emporia and $2.95 at Garden City. The highest were found at Ottawa with $3.41 and Colby with $3.40.
With two days left in the first eighth of 2014, GasBuddy calculates that regular gas will average less than $3.30 a gallon for the period, the cheapest opening 45 days since 2010. Currently, the national year-to-date average thus far into the year sits about 6 cents per gallon below the same time period last year.
Gasoline is likely to be considerably more expensive over the next 45 days. There are traditional and entirely new updrafts propelling motor fuel higher, and they conveniently add up to eight slices of concern. Here are the items that GasBuddy analysts believe will contribute to higher prices as the days get longer in North America:
Historical Precedent: Gasoline futures bottomed at $2.495 per gallon in early November. The average winter-to-spring futures’ rally in the last 30 years has been 57 percent, targeting a gasoline futures price rise of over $1.40 gal. GasBuddy believes that the 2014 rally will be well below that average increase, but even a modest 25 percent rally in futures would target NYMEX RBOB levels above $3.10 per gallon, implying another 35 cents per gallon or more of upside.
Specifications: The winter-to-summer shift in vapor pressure has already lifted some California spot gasoline markets and the switch implies a 15-20 cents per gallon increase as other East of the Rockies’ locations make the shift in March and April. Reformulated cities in the northeast are the locations most susceptible to the greatest consequences of specification shifts.
Imports: European refiners have struggled with much higher crude and natural gas costs than U.S. refiners. Accordingly, much less foreign gasoline now makes the transatlantic journey to the East coast of the U.S. Much of the gasoline that can meet tough U.S. summer reformulated specifications is likely to stay abroad.
Maintenance: An extensive refinery “turnaround” schedule has just commenced at the U.S. Gulf Coast, with very light work on the docket in the Midwest. The northeast, already finds two huge Delaware River refineries down for maintenance, and the largest offshore contributor to U.S. reformulated gasoline is the Irving refinery in St. John, New Brunswick. That plant will be down for extensive maintenance in late February and most of March.
Exports: U.S. Gulf Coast refiners now commonly provide cargoes of gasoline to Central and South America as well as Africa, and West Coast refiners recently sent record amounts of motor fuel to Asia. The cost of shipping gasoline to foreign countries is a fraction of the fees that companies encounter when they move product from port-to-port stateside.
Speculators: Gasoline has yet to catch the fancy of speculators, but hedge funds, banks, and large speculative trading houses love seasonal momentum plays. The last report from the Commodity Futures Trading Commission (CFTC) showed speculative buyers outnumbering speculative sellers by about 41.6-million barrels. That might seem like a large “bullish bet” on gasoline, but it is less than 45 percent of the bullish speculative stance one year ago, and about half of the bullish holdings reached in 2011 and 2012. GasBuddy suspects that speculative money will embrace gasoline futures in coming weeks.
Pent-Up Demand: There’s no denying that year-to-date motor fuel demand has been poor, but it can clearly be blamed on inclement weather. U.S. demand numbers should appear favorable when year-on-year comparisons are rendered during the next six weeks. A year ago, the weekly reports from the Energy Information Administration showed late February and March demand levels of about 8.46-million barrels per day. GasBuddy anticipates a very lumpy 2014 for demand, but projects that demand later this quarter could certainly top 8.6-million barrels per day.
Inventories: Current U.S. gasoline stocks are just under 235-million barrels, about 1-million barrels above early February last year, and about 5-million barrels higher than five year average levels. But winter gasoline is “perishable” and can actually clog the distribution system. EIA reports don’t delineate how much gas meets spring and summer specifications, and there is always concern that the market will have too much old gas, and too little on-spec material.
