INSIGHT: US summer gasoline prices may not make major gains

23 April 2013 18:31  [Source: ICIS news]

HOUSTON (ICIS)--Stricter regulations placed on gasoline in the US by the Environmental Protection Agency (EPA) during the hotter, summer months typically have a big impact on retail gasoline prices, but this year, prices may not rise as dramatically as in 2012.  

Typically, US retail gasoline prices rise as summer approaches, mainly because of an increase in demand from travel and the spring turnaround and maintenance season many refiners plan.

Another factor in higher prices is the Reid Vapor Pressure (RVP) standard, which is a common measure of and generic term for gasoline volatility.

According to the EPA, the agency regulates the vapour pressure of gasoline sold at retail stations during the summer ozone season in order to reduce emissions “that contribute to ground-level ozone and diminish the effects of ozone-related health problems”.

Since travel is busier during the summer months, the summer ozone season runs from 1 June through 15 September. For all regulated parties except retailers and wholesale purchaser-consumers, the maximum emissions standards generally take effect on 1 May.

This means refineries must produce gasoline that is more expensive, and those increased costs are passed down to retail consumers.

“This is a very sensitive time of year as refineries slow production while they perform maintenance at their plants, then begin to phase in EPA-mandated cleaner burning summer gasoline,” said senior petroleum analyst Patrick DeHaan. “Refinery problems related to the maintenance are generally a leading factor in prices this time of year.”

However, the EPA does grant waivers for gasoline requirements in times of crisis, which help to ease price increases.

In September, the EPA granted a waiver for the most expensive RVP standard for states that were affected by Hurricane Isaac.

The waiver came as refinery restarts in impacted states were slower than expected, which could have resulted in a temporary supply disruption of the higher summertime RVP blends.

In October, a waiver was issued for the state of California to begin selling cheaper RVP blends earlier than normal as a string of unplanned refinery shutdowns caused a shortage of supplies.

The cheaper, winter-grade RVP blends are normally put into effect in mid-September in most states, but California laws limit emissions through 31 October.

Despite the impending regulations, US automobile organisation AAA has maintained its prediction that the national average price for 2013 will reach its high at a lower price point and earlier than in 2012.

The peak 2013 price to date is $3.79/gal on 27 February. In 2012, the price peaked at $3.94/gal on 5-6 April.

Lower crude oil prices have been pushing gasoline prices down, which is the main factor in the lower retail average in 2013.

Oil prices recently fell by nearly 40 cents/gal year on year, and West Texas Intermediate (WTI) crude futures on the NYMEX have recently traded below the $90/bbl mark for several days.

According to the US Energy Information Administration (EIA), if the average retail price of regular gasoline does not rise above $3.78/gal again this season, the 2013 seasonal price increase will have the earliest ending date since the EIA began reporting weekly retail gasoline prices in 1991.

Currently, Hawaii remains the only state where the average of retail gasoline prices remains above $4/gal, and since refineries are scarce in that state, it is likely to remain above that mark through the summer.

As refineries return from the routine spring maintenance turnaround season in order to increase production ahead of the start of the summer driving season, which is on Memorial Day, motorists should see a slight reprieve ahead of summer.

However, any delays in start up or unexpected outages could derail the lower movement in gasoline prices.

“This is a very sensitive time of year for the nation’s refineries, as they finish maintenance and work ahead of the summer driving season,” said DeHaan. “If there are more outages, expect prices to advance - something typical for this time of year.” 

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By: Anna Matherne

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