OUTLOOK ’13: Economic uncertainty may stifle US gasoline price increase

07 January 2013 14:00  [Source: ICIS news]

HOUSTON (ICIS)--Gasoline prices in 2013 could hold near 2012 highs, although decisions on key topics and an increase in alternative fuel use could cause prices to fall.

Regionally, gasoline prices spiked at an unusual time during 2012.

Prices typically decline in the third and fourth quarters of the year as demand weakens and refiners switch to cheaper, heavier blends of gasoline.

On the east coast, however, prices rose in November after Hurricane Sandy disrupted the normal flow of gasoline from the US Gulf coast to the New York Harbor.

“Spot prices in the New York Harbor were unusually strong in November but prices in the Gulf coast spot market were sharply lower in November,” said Dan Lippe, president of Petral Consulting.

The disruption to normal pipeline shipments into the northeast caused supply to back up into Gulf coast storage, pushing prices in the Gulf down.

But the price spike in the east coast was short-lived as prices dropped toward year’s end.

Furthermore, as previously closed refineries on the east coast are bought and started up, east coast gasoline prices could fall even further in 2013 after more supplies are made available in the region.

The Carlyle Group teamed up with Sunoco in August 2012 to keep open its 330,000 bbl/day Philadelphia refinery in Pennsylvania.

Also in 2012, Delta Air Lines bought the idled 185,000 bbl/day Trainer refinery in Pennsylvania from Phillips 66 through its subsidiary Monroe Energy.

And, as more companies have announced plans to sell their refineries throughout the US, a buyers’ market could keep supplies steady and gasoline prices low in 2013.

“I think any company that is willing offer a fair market price or somewhat more will find willing sellers of east coast refining,” said Lippe, but added, “I doubt other airlines will jump into the game for the next year or two.”

Average US retail gasoline prices hit an all-time average high in 2012 at $3.60/gal, and the US Energy Information Administration (EIA) projects that the 2013 average will be somewhat lower at $3.43/gal in 2013.

“[I] believe that we may see a slight break versus 2012,” said GasBuddy.com analyst Patrick DeHaan. “To clarify, that doesn’t mean we won’t set new all-time record highs in some areas, but my growing belief is that the yearly average we set in 2012 won’t be set anew in 2013, and that would be welcome relief.”

In comparison, the 2011 average retail gasoline price was at $3.53/gal, according to the EIA.

“I do not see prices being much stronger in 2013 than during most of 2012 (except November/December),” said Lippe. “Prices in Q2 and Q3 2013 may be 10 cents/gal lower due to the economic recession in Europe and slower GDP growth in North America.”

The unemployment rate, which is a signal of retail gasoline demand strength or weakness, may not gain traction in 2013, particularly if the US GDP slows.

“I am sceptical that the reported decline in unemployment was anything more than the seasonal hiring in the retail sector that occurs most years,” said Lippe. “Slower GDP growth does not bode well for continued improvement in employment after 2 January.”

Meanwhile, a decision on the Keystone Pipeline approval remains uncertain after the re-election of President Obama.

“It is now a question of what President Obama wants his legacy to be,” Lippe said. “He may be more inclined to prefer to be remembered as the defender of the environment.”

While pipeline approval means an increase in jobs, those jobs are temporary. According to Lippe, permanent job creation will depend on in-sourcing manufacturing from Asia back to North America.

And some companies are already making headway into keeping jobs in the US. General Electric recently brought manufacturing of a high-end residential water heater back to its Kentucky factory, and Apple announced that it will do more manufacturing in the US rather than in Asia. 

“In-sourcing is just the pendulum swing that was inevitable,” said Lippe.

But new concerns causing gasoline demand to retreat could be the biggest factor in pushing prices lower in 2013.

Gasoline demand, which has remained much lower than 2011 rates, may be further stifled by alternative fuel vehicles. Sales of these vehicles increased in 2012 and will continue to do so in 2013.

Market researchers Mintel said sales were 73% higher in 2012, with 440,000 hybrids, plug-ins and electrics sold, making it the fastest-growing segment in the US for the year. Alternative-fuel vehicles replaced the once-fastest-growing compact-car vehicle segment. 

“Despite the dramatic growth in 2012, hybrids and electrics will make even more headwind in the US market over the coming years,” said DeHaan.
Mintel has forecast sales of hybrid and electric cars to exceed 535,000 units by the end of 2013, or a 14% increase in sales over 2012 estimates.

“It appears that consumer concern for the high and rising cost of fuel may drive the development of the market even further,” said DeHaan.

But, according to Lippe, demand could also begin to replenish itself in the first half of 2013.

“As long as prices at the pump remain below $4.00/bbl, the seasonal increase in demand will occur on schedule in March/April,” said Lippe.

By: Anna Matherne

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