US retail gasoline prices plunge on switchover to winter gasoline

20 September 2011 22:07  [Source: ICIS news]

HOUSTON (ICIS)--US retail gasoline prices will drop further as the winter gasoline blends come to the pumps, an analyst said on Tuesday.

“Usually when you switch from summer gasoline blends to winter blends, retail prices take off a minimum of 15-20 cents/gal," said PFG Best analyst Phil Flynn. "Really, right now, we are at the precipice of the switchover.”

Summer gasoline blend requirements expired on 15 September, Flynn said.

The low vapour pressure requirements for summer gasoline limits the choice of blendstocks to those higher in oxygen, which are more costly.

Gasoline wholesale prices, which influence retail prices, across the US were close to $3.00/gal before taxes a month ago , and now in most regions of the US, have stations selling at $2.68-2.75/gal, giving up about 10% of its value in a month, said Patrick DeHann, a senior petroleum analyst at GasBuddy.com.

The US Energy Information Administration (EIA) reported that retail prices peaked at $3.97/gal on 9 May. Gasoline analysis group AAA reported the nationwide average for retail prices at $3.58/gal on 20 September, 10% lower than the peak price of May.

DeHaan said retail prices are expected to continue to fall. 

Gasoline blends are required to have a higher percentage of oxygenates during the summer heat, lowering the vapour pressure and in turn lowering the amount of gasoline components that escape into the air and cause pollution.

Winter blends are allowed 11.5 or 13.0 Reed Vapor Pressure (RVP), compared with 7.8 or 9.0 RVP during the summer. This allows for less costly winter blendstocks that have higher vapour pressure.

DeHaan said the recent plunge for gasoline demand marked the end of the peak summer driving season.

For the week of 9 September, motor gasoline demand fell to 8.848m bbl, falling 108,000 bbl/day, from the prior week

That marked the second consecutive week of a drop in demand. Demand for 27 August through 9 September dropped by 382,000 bbl/day, or 2.674m bbl, falling to 8.848m bbl from 9.230m bbl/day.

Gasoline profit margins fall on less demand after the summer. On 13 September, the gasoline profit margin for refiners was at $24.97/bbl, the lowest since 8 June when the spread was at $24.37/bbl.

This is an incentive for refiners to start maintenance and planned turnarounds at the refineries, since the profit margins for production are falling, said DeHaan. The refiners could also choose to do maintenance to tighten supply and attempt to increase gasoline prices and profit margins.

The lowest gasoline prices occur around the US Thanksgiving holiday at the end of November. Christmas can lead to lower or higher gasoline prices, depending on the strength of consumer spending during the season.


By: Sheena Martin
+1 713 525 2653



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