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Fuel Marketer Intelligence: Supply Chain Dynamics to Retail Fuel Prices

Despite a 2.2% rally on expiration day by the February gasoline futures contract traded on the New York Mercantile Exchange in closing out January, gasoline futures with nearest delivery ended the month down 16.4cts or 12.9% at $1.1031 gallon, with renewed selling ushering in February. Nearest delivered gasoline futures broke below $1 gallon during the final week of January, trading at a $0.9924 better-than seven-year low on January 27.

Nonetheless gasoline futures, known as the Reformulated Blendstock for Oxygenate Blending contract, should find some price support relative to crude oil with the start of the refinery maintenance season and the transition to lower Reid Vapor Pressure specifications, with lower RVP gasoline more costly to produce. RVP ratings measure the release of harmful emissions from gasoline referred to as volatile organic compounds, which occur more readily in warmer weather.

The forward curve—the value of futures contracts for later delivery, suggests nearest delivered RBOB futures plumbed a seasonal low in late January, with the March contract trading at a more than 20cts gallon discount to April delivery and through the summer months. In years past, the calendar spread illustrated the winter-to-spring rally by RBOB futures, with the combination of refinery maintenance, the RVP transition and expectations for greater driving demand as the weather turns warmer pushing gasoline prices higher.

Yet 2016 has already demonstrated insolence for history and past practice, with global equity markets in turmoil, a rebellious US presidential race that has confounded political pundits, and what some analysts suggest is a reordering of world order serving as exhibits a, b and c. Oh, and US crude production in mid-January is on par with a year ago at 9.221 million bpd, up 8,000 bpd from January 2014, despite 807 fewer rigs looking for oil, data from the Energy Information Administration and Baker Hughes Inc., respectively, shows.

Economic Picture of Gas Demand

An economic picture, although starting to blur, does support expectations for robust gasoline demand in the United States, with consumer confidence reaching a three-month in January according to the Conference Board’s Consumer Confidence Index, with lower gasoline prices supporting sentiment. Consumer spending continues to increase, albeit at a slower pace than marke...