The decline in US retail gasoline prices through early May is set to reverse ahead of Memorial Day, frequently referenced as the start to the summer driving season and, indeed, expectations call for robust travel during the holiday weekend.
The Energy Information Administration’s national average retail price for regular grade gasoline declined for a second week through May 12 to a $3.668 gallon one-month low. That low could hold through May, as higher wholesale costs for both gasoline and ethanol work through the supply chain.
In futures trade, the Reformulated Blendstock for Oxygenate Blending nearby delivery contract was flirting with $3 gallon May 16 for the first time since April 30, rallying back from a $2.8718 gallon one-month low plumbed May 7. The New York Mercantile Exchange futures contract found support in higher crude costs, with the Brent benchmark trading on ICE Futures reaching a three-week high $110.60 bbl on May 15.
Geopolitical tension, highlighted by the Ukraine crisis and fighting in Libya, raised the premium in crude prices while the International Energy Agency called for more crude oil production from OPEC for the second half of the year due to a tightening global supply-demand disposition. Domestically, crude production reached a 28-year high at 8.428 million bpd per EIA, although comments from senior Obama administration officials suggest the United States is considering exporting crude that has been restricted since 1975.
Gasoline fundamental factors also surprised to the upside, with supply drawn down the week-ended May 12 after two successive builds, holding near the five-year average. Implied gasoline demand spiked to a 9.191 million bpd nine-month high the same week, and was up a steep 850,000 bpd or 10% from the comparable year-ago period.
That bounce in demand could have legs, with AAA Travel projecting a 1.5% year-on-year hike in holiday travel Memorial Day weekend to 36.1 million, 2.6% above the 10-year average and the second highest travel volume since 2000 if realized. Meanwhile, speculators holding NYMEX RBOB futures contracts reduced a net-long position, taken on expectation prices would rise, for the second week through May 13 from a 14-month high to a five-week low. This sets the stage for short covering, adding paper demand for the gasoline market.