As a thought experiment, consider the 2014 motor fuel market a pizza, divided conveniently into eight slices. If you stretch the metaphor, U.S. consumers have completed the cheapest slice of winter pie since 2010. But GasBuddy predicts that some much more expensive slice of gasoline pricing is imminent, with pump prices likely to jump some 15-40cts gal between now and Easter Sunday.
With two days left in the first eighth of 2014, GasBuddy calculates that regular gas will average less than $3.30 gal for the period, the cheapest opening 45 days since 2010. Currently, the national year-to-date average thus far into the year sits about 6cts gal below the same time period last year.
Gasoline is likely to be considerably more expensive over the next 45 days. There are traditional and entirely new updrafts propelling motor fuel higher, and they conveniently add up to eight slices of concern. Here are the items that GasBuddy analysts believe will contribute to higher prices as the days get longer in North America:
Historical Precedent: Gasoline futures bottomed at $2.495 gal in early November. The average winter-to-spring futures’ rally in the last 30 years has been 57 percent, targeting a gasoline futures price rise of over $1.40 gal. GasBuddy believes that the 2014 rally will be well below that average increase, but even a modest 25% rally in futures would target NYMEX RBOB levels above $3.10 gal, implying another 35cts gal or more of upside.
Specifications: The winter-to-summer shift in vapor pressure has already lifted some California spot gasoline markets and the switch implies a 15-20cts gal increase as other East of the Rockies’ locations make the shift in March and April. Reformulated cities in the northeast are the locations most susceptible to the greatest consequences of specification shifts.
Imports: European refiners have struggled with much higher crude and natural gas costs than U.S. refiners. Accordingly, much less foreign gasoline now makes the transatlantic journey to the East coast of the U.S. Much of the gasoline that can meet tough U.S. summer reformulated specifications is likely to stay abroad.
Maintenance: An extensive refinery “turnaround” schedule has just commenced at the U.S. Gulf Coast, with very light work on the docket in the Midwest. The northeast, already finds two huge Delaware River refineries down for maintenance, and the largest offshore contributor to U.S. reformulated gasoline is the Irving refinery in St. John, New Brunswick. That plant will be down for extensive maintenance in late February and most of March.
Exports: U.S. Gulf Coast refiners now commonly provide cargoes of gasoline to Central and South America as well as Africa, and West Coast refiners recently sent record amounts of motor fuel to Asia. The cost of shipping gasoline to foreign countries is a fraction of the fees that companies encounter when they move product from port-to-port stateside.
Speculators: Gasoline has yet to catch the fancy of speculators, but hedge funds, banks, and large speculative trading houses love seasonal momentum plays. The last report from the Commodity Futures Trading Commission (CFTC) showed speculative buyers outnumbering speculative sellers by about 41.6-million barrels. That might seem like a large “bullish bet” on gasoline, but it is less than 45 percent of the bullish speculative stance one year ago, and about half of the bullish holdings reached in 2011 and 2012. GasBuddy suspects that speculative money will embrace gasoline futures in coming weeks.
Pent-Up Demand: There’s no denying that year-to-date motor fuel demand has been poor, but it can clearly be blamed on inclement weather. U.S. demand numbers should appear favorable when year-on-year comparisons are rendered during the next six weeks. A year ago, the weekly reports from the Energy Information Administration showed late February and March demand levels of about 8.46-million barrels per day. GasBuddy anticipates a very lumpy 2014 for demand, but projects that demand later this quarter could certainly top 8.6-million barrels per day.
Inventories: Current U.S. gasoline stocks are just under 235-million barrels, about 1-million barrels above early February last year, and about 5-million barrels higher than five year average levels. But winter gasoline is “perishable” and can actually clog the distribution system. EIA reports don’t delineate how much gas meets spring and summer specifications, and there is always concern that the market will have too much old gas, and too little on-spec material.