US gasoline exceeds prices called for by demand, oil - economist

22 November 2010 23:51  [Source: ICIS news]

HOUSTON (ICIS)--US gasoline prices are at a 13-cent/gal premium over an analysis based on demand and crude-oil prices, an energy economist said on Monday.

“We’ve seen relatively weak demand margins [for gasoline] throughout the supply chain,” said John Felmy, chief economists with American Petroleum Institute (API). “Gasoline deliveries were also up slightly, with refineries turning out more gasoline in September than any September on record. With weak demand in anything, it’s so hard to see price increases passed along.”

For the week ended 12 November, total motor gasoline inventories were at 210.3m bbl with demand at 9.056m bbl/day, according to the Energy Information Administration (EIA).

The refining industry has seen poor margins for producing gasoline around $5-$7/bbl, but despite this, the costs of manufacturing cannot always be passed along to the consumer. The gasoline retailers and refiners have tried to pass the price along, though, Felmy said.

Crude oil prices peaked on 10 November at $87.81/bbl, but recently declined to $81.00/bbl in recent trading sessions. This should have translated into a 15 cent/gal-decline in retail gasoline prices.

Instead, prices have dropped by 2 cents/gal, indicating a 13-cent/gal premium.

On 15 November, shortly after crude oil peaked, gasoline retail prices hit their high at $2.893/gal, according to the AAA. Currently, retail gasoline prices were reported at $2.872/gal. This was not nearly the 15 cent-drop that was expected.

The NYMEX futures market tells a similar story for reformulated gasoline blendstock for oxygenate blending (RBOB). Since 1 October through 17 November, RBOB futures climbed 1.9% while crude oil prices slid 1.4%.

“With the continued decline in crude prices we’ll have to pay attention to what happens with crude oil, and what consumers choose to do over the holiday,” Felmy said. “A big issue is the TSA [Transportation Security Administration] screening with flying that might push more consumers to drive rather than fly.”

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By: Sheena Martin
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