After late-2012 declines, gasoline prices stabilize in early 2013

 Resize text         Printer-friendly version of this article Printer-friendly version of this article

The U.S. average retail price for regular gasoline fell steadily through the end of 2012, to $3.25 per gallon on December 17 from $3.88 per gallon on September 17. After rebounding slightly in the final weeks of 2012, prices have held relatively steady through the first three weeks of 2013, increasing less than two cents per gallon to $3.32 per gallon. The stable prices in 2013 reflect Brent crude oil prices that have traded in a relatively well-defined range since the beginning of the year, and gasoline crack spreads that are largely unchanged, on average, from December. However, the stable national average does not capture the significant regional variation in gasoline prices, with the highest average prices for any Petroleum Administration for Defense District (PADD) on the West Coast (PADD 5) at $3.50 per gallon and the lowest average prices in the Rocky Mountains (PADD 4) at $2.88 per gallon (Figure 1).

click image to zoom

Gasoline prices fell in fourth-quarter 2012 as a result of modestly decreasing crude oil prices and narrowing gasoline crack spreads throughout the United States. Brent crude oil, the crude that U.S. product prices generally track, fell from a September 2012 average of $112.86 per barrel to an average of $109.49 per barrel in December 2012, a decrease of 8 cents per gallon. Most of that decline was in October, and Brent prices remained in a fairly well-defined range from late October through the end of the year. However, decreasing gasoline crack spreads contributed most of the late-2012 price decreases.

Refineries have been running at high levels in response to strong distillate fuel crack spreads and low crude oil input costs in some regions, particularly the Midwest (PADD 2) and Rocky Mountains. The high refinery runs have led to increases in gasoline production, at a time when gasoline demand in the United States has been stagnant. This situation is reflected in high gasoline inventory levels. In four of the five PADDs, inventory levels are above their five-year average, PADD 1 being the only exception. As of January 18, U.S. total gasoline inventories stood at 233.3 million barrels, 8.3 million barrels (4 percent) above their five-year average level and 37.8 million barrels (19 percent) above early-October levels. Some of this inventory build is attributable to typical seasonal patterns. In anticipation of spring refinery maintenance season, market participants will often build inventories in the fourth quarter and early first quarter while demand is lower. However, the 37.8-million-barrel inventory build between the first week of October and mid-January was 17.3 million barrels above the five-year average.

After declining during the fourth quarter of 2012, the wholesale gasoline market has not seen large price movements in recent weeks, and the changes that have occurred have been generally offsetting, with crack spreads increasing somewhat on the Gulf Coast and in Los Angeles, while remaining relatively stable in New York and decreasing further in Chicago. As a result, U.S. average retail gasoline prices have increased less than two cents per gallon since December 31, 2012, averaging $3.32 per gallon on January 21.

As the major U.S. refining center, the Gulf Coast is a key market for gasoline and ships gasoline to regions throughout the country. While Gulf Coast gasoline markets have strengthened in January, they are still extremely weak. Crack spreads (measured here as the difference between the conventional gasoline spot price and the Brent crude oil spot price) in the region have been persistently negative since November. In January, they have thus far averaged -4 cents per gallon, an increase from the -13 cents per gallon they averaged in December. In December, crack spreads for conventional gasoline were also negative in Los Angeles but have since recovered, averaging 8 cents per gallon in January as several refineries have undergone maintenance on gasoline-producing units. New York crack spreads in January have been largely unchanged, up just a penny from the 12 cents per gallon they averaged in December. Chicago is currently the weakest market. Crack spreads in the area have been negative since November, but in January they have become even more negative, averaging -24 cents per gallon compared to -19 cents per gallon in December. Note that the Chicago crack spread is shown using Brent crude oil to be consistent with other regions; however, refineries in the Chicago market are more likely to have access to lower-priced West Texas Intermediate (WTI)-linked crudes, meaning refiners could be seeing small positive margins for gasoline. In this market structure, some refineries in the Midwest can access cheaper WTI-linked crudes and sell gasoline into a Brent-priced product market. This is because the Midwest has to attract some gasoline from the Gulf Coast.

Similar to the situation in wholesale markets, stable retail gasoline prices at the national level mask regional variation. The most notable exception to the trend of stable prices has been in the Rocky Mountains. On November 5, Rocky Mountain prices were 12 cents per gallon higher than the U.S. average, but they fell to $2.88 per gallon by January 21, 44 cents per gallon lower than the U.S. average. While there are no observable spot prices for the Rocky Mountains, a similar dynamic is occurring there, where refinery runs are high because refineries in the Rockies seek to capture margins from the region's lower crude oil costs. Because the Rockies are a relatively isolated market with few significant pipeline connections to other U.S. markets, high levels of gasoline production can sometimes depress retail prices in the region compared to the U.S. average; a similar situation occurred last year.

Looking forward, EIA forecasts gasoline prices to rise moderately through the first half of 2013. This increase is partly related to the switch to summer-grade gasoline during the spring that typically encourages widening crack spreads at that time of year. Increasing wholesale gasoline prices are expected to be partially offset by declining Brent prices. EIA forecasts U.S. average regular gasoline retail prices will peak in May at $3.59 per gallon. Regional variation is expected to continue, with West Coast prices expected to average $3.79 per gallon in May and peak a month later than the national average at $3.82 per gallon in June. On the low end, Gulf Coast prices are expected to return to their typical position as the lowest in the country, peaking at $3.45 per gallon in May.



Comments (0) Leave a comment 

Name
e-Mail (required)
Location

Comment:

characters left


Mycogen® brand Silage-Specific™ Corn Hybrids

No other company has more experience with silage than Mycogen Seeds. Mycogen® brand TMF corn silage hybrids are bred specifically ... Read More

View all Products in this segment

View All Buyers Guides

)
Feedback Form
Leads to Insight