Mild unrest as gasoline prices climb

US retail gasoline prices reached an average $2.67/gal on June 15, nearly 60 cents above their average on May 4, the US Energy Information Administration reported. Higher crude oil prices were the primary culprit, American Petroleum Institute officials told reporters.

Jun 16th, 2009

US retail gasoline prices reached an average $2.67/gal on June 15, nearly 60 cents above their average on May 4, the US Energy Information Administration reported. Higher crude oil prices were the primary culprit, American Petroleum Institute officials told reporters.

“Most analysts have seen an improvement in the worldwide economy, which has helped several commodities including crude oil,” API Chief Economist John C. Felmy said. Production cuts by the Organization of Petroleum Exporting Countries, whose members apparently are showing more discipline than usual, also contributed, he indicated.

“We’ve had some demand growth for gasoline, not terribly strong but much more than for other products. The industry is producing near-record amounts,” added Ronald Planting, API’s statistics director.

Refinery utilization rates have held up better than rates for US manufacturing as a whole, he continued. At around 84%, it’s 20 percentage points higher than the domestic manufacturing average, he said.

The average US retail gasoline price should reach its summer seasonal peak in July, with a monthly average near $2.70/gal, EIA said in its latest short-term energy outlook on June 9.

Gasoline demand rises

It expects overall oil products demand to drop by an average 550,000 bbl a day during 2009 because of the weakened domestic economy, but anticipates a 30,000 b/d increase in average motor gasoline demand because of significantly lower prices and stabilized disposal incomes.

“Demand is a function of prices and the consumer’s income,” API’s Felmy explained. “Right now, gasoline costs about $1,700-1,800 of the consumer’s yearly budget, down about $1,000 from a year ago. It reinforces that we need to get moving on an energy policy.”

The US Senate Energy and Natural Resources Committee has been preparing an energy bill with several significant provisions. But other committees on both sides of the Capitol seem more concerned with closing what they consider commodity trading loopholes which contributed to 2008’s dramatic crude oil price spike.

Transparency and oversight

Senate Agriculture, Nutrition and Forestry Committee Chairman Thomas R. Harkin (D-Iowa) noted in a June 4 hearing that he introduced a bill earlier this year which would require all futures contracts to trade on regulated exchanges. “Exchange-traded contracts are subject to a level of transparency and oversight that is just not possible in over-the-counter markets,” he said.

“For many years, derivative contracts have traded very efficiently and openly on regulated exchanges. We have seen the damage done by moves to circumvent properly regulated derivatives trading,” Harkin said.

On June 12, the US Commodity Futures Trading Commission used authority it received from Congress in 2008 for the first time to examine whether a contract traded on the Intercontinental Exchange performs a significant price discovery function and should be regulated.

Felmy remained skeptical that speculation was driving the current gasoline price rise. More normal summertime demand certainly is playing a role, he conceded. “But I think the increase in crude prices has played a bigger part,” he maintained.

Contact Nick Snow atnicks@pennwell.com

More in Government