Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices
A near vertical arc forms on the 10-year chart of vehicle miles traveled on US roads recently released by the Federal Reserve Bank of St. Louis through its FRED economic data series, with US VMT in May at an all-time high of 3.08 trillion miles. That’s up 3.7% from May 2014, and judging by preliminary statistics on gasoline consumption this summer from the Energy Information Administration, subsequent data will show even higher VMT.
Along the “build it they will come” mantra, record high gasoline production coupled with low retail prices has prompted more Americans to again get behind the wheel whether their travel is for longer road trips or increased discretionary driving. Ongoing improvement in the labor market, with the national unemployment rate at 5.3% in June, the lowest it has been since April 2008, has also pushed driving demand higher.
EIA reports implied gasoline demand during the week-ended July 17 at 9.749 million bpd, just below the all-time high weekly rate registered in mid-August 2007 at 9.762 million bpd. Implied gasoline demand, which refers to gasoline supplied to the primary market, tumbled 411,000 bpd during the subsequent week to 9.339 million bpd.
However, this looks more like choppiness in the weekly data, with the four-week average through July 24 showing implied gasoline demand at 9.506 million bpd, 558,000 bpd or 6.2% more than during the comparable year-ago period. Implied gasoline demand in 2015 has slipped below the five-year average for only six weeks, the last time in late May, and in nearly every case, following a surge in the demand rate during the previous week.
Cumulatively in 2015 through July 24, implied gasoline demand averaged 9.082 million bpd, running ahead of the 2014 rate by 346,000 bpd or 4.0%.
A steep selloff by nearest delivered Brent crude futures traded on the IntercontinentalExchange in July, which plunged $11.07 or 17.5% from a July high of $63.35 bbl traded on July 1 to a $52.28 low traded on July 28, should continue to drive retail gasoline prices down and incentivize driving.
The EIA reported the average for all formulations of regular grade gasoline sold at retail outlets across the United States dropped 5.7cts to a ten-week low at $2.745 gallon during the week-ended July 27, which is 79.4cts less than the same week year prior. Interestingly, during July the US retail price average for diesel fuel fell below the gasoline average for the first time in six years, dropping 5.9cts to $2.723 gallon on July 27—the lowest the average has been since October 2009.
The national gasoline average would be lower if gasoline prices in California weren’t so high, owing to a persistent supply-short market amid the protracted outage at the Torrance refinery located south of Los Angeles.
A gasoline-producing unit at the ExxonMobil refinery remains impaired following a February explosion, with an expected restart time for July pushed back some speculate to end year. Amid the supply tightness, delayed imports to the state squeezed wholesale prices sharply higher in July that were later passed through to retail. Despite a 13.5cts drop in LA’s retail price average during the week-ended July 27, retail prices in LA remained above $4 gallon at $4.137 EIA data shows, 13.5cts more than year prior.
Wholesale spot gasoline prices in LA, which spiked as high as a $1.40 gallon above nearest delivered New York Mercantile Exchange RBOB futures on July 9, moved sharply lower during the final week of July, with incoming cargoes into the state easing the short squeeze. The basis was trading a little more than 30cts gallon above NYMEX September RBOB futures on July 30.