U.S. gasoline prices at the pump are poised to drop by year end, if history is any guide, as refineries resume production, Europe exports more fuel to the East Coast and Americans drive less.
Prices at service stations may fall about 6.3 percent to $3.54 a gallon, according to eight years of seasonal data compiled by Bloomberg. Gasoline deliveries to the U.S. from Europe may rise 35 percent, according to the median of eight estimates in a Bloomberg News survey. Demand has declined an average of 3.6 percent from July through December during the past five years, Energy Department data show.
While prices usually drop during the third quarter, this year is different because plants on the East Coast and in the Virgin Islands were permanently shut, reducing supply. Pump prices rose as high as $3.871 a gallon last month, a record for the period, AAA data compiled by Bloomberg show, feeding the perception that President Barack Obama won’t do as well as Republican challenger Mitt Romney in lowering prices, according to a Bloomberg poll.
“The market is expecting the return of supply as we go through the course of October and the refineries in Europe get through their maintenance period,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. “Between now and the election, prices will fall moderately, 10 to 15 cents a gallon, but they won’t have much of an impact on the election.”
Production is so constrained that any surprise can lead to magnified market moves. An explosion at Irving Oil Corp.’s plant in Saint John, New Brunswick, on Sept. 26 that did no damage to the main part of the refinery, sent gasoline up 2.3 percent in 10 minutes on the New York Mercantile Exchange.
Gasoline for October delivery surged 19.77 cents, or 6.3 percent, to $3.342 a gallon Sept. 28, its last day of trading, capping a 23 percent gain since June, the largest third-quarter increase since 2005 when Hurricanes Katrina and Rita shut almost 30 percent of U.S. refining capacity. The November contract sank 6.97 cents, or 2.4 percent, to settle at $2.7995 today.
Production and supply may rise as retail outlets switch to winter-grade fuel, which doesn’t have to meet as stringent emissions specifications and can be made from a wider variety of blendstocks, such as butane. Gasoline output in the U.S. has risen an average of 3.6 percent in the fourth quarter during the past five years.
“Towards October we should start to see some relief at the pump based on the rollover to the winter grade,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. Retail prices could fall 20 cents to between $3.50 and $3.60 a gallon, Schork said.
Prices ended last year at $3.278 a gallon, according to Heathrow, Florida-based AAA, the nation’s largest motoring organization
In a Bloomberg National Poll of 1,007 respondents conducted Sept. 21-24, 46 percent said Romney would do a better job controlling gasoline prices, compared with 39 percent for Obama.
Falling prices may remove gasoline as an issue for voters in the presidential election, said Andrew Lebow, senior vice president for energy at Jefferies Bache LLC in New York.
“Are they going to make their decision based on gasoline prices?” said Lebow. “Not at $3.70 or $3.80. Maybe if they’re above $4, they might be another factor to sway undecided voters.”
Prices rose as the largest refineries in Canada and Europe underwent maintenance, along with another plant in Wales that ships gasoline to the U.S. In the Mid-Atlantic area, which includes New York Harbor, the delivery point for Nymex futures, inventories are at the lowest point since the Energy Department began releasing weekly data in 1990.
Traders were so eager to get the scarce supply that they pushed the October contract to 42.19 cents above November’s on Sept. 28. The so-called backwardation, or premium of the front contract to the next one, was the highest since gasoline began trading on the New York Mercantile Exchange in 1986.
Companies booked 16 tankers for the two weeks to Oct. 10, and 11 more probably will be hired, according to the median estimate in a survey of eight shipbrokers and traders Sept. 26. That’s seven vessels more than the previous week’s total and the most shipments since Sept. 12, prior surveys showed.
While Americans purchased 3.8 percent less gasoline this year and the U.S. met 81 percent of its energy needs in 2011, the most since 1992, refinery closures have left East Coast stockpiles of motor fuel at a four-year low, Energy Department data shows today.
“The market was already on edge because of tight supply, but some wholesalers put off buying hoping supplies would appear,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
New York Harbor was left more susceptible to shortages after Hovensa LLC shut its St. Croix refinery in February. The plant supplied 95,000 barrels a day of gasoline to the East Coast in 2011, 3 percent of consumption. Sunoco Inc. (SUN) shut the Marcus Hook, Pennsylvania, facility in December. Delta Air Lines Inc. expects to return the Trainer plant to full production this week, a year after it was idled by ConocoPhillips.
“The shutdown of Hovensa, Marcus Hook and Trainer have led to seasonally higher prices, which longer term will be mitigated by higher product imports and higher product pipeline transfers from the Midwest and Gulf Coasts,” said Hamza Khan, an analyst at Schork Group.
Irving is performing seasonal work on sections of the 298,800-barrel-a-day Saint John plant, which sends more than half of its fuel output to the northeast U.S.
Across the Atlantic, Royal Dutch Shell Plc (RDSA) has shut parts of the Pernis refinery in the Netherlands for maintenance. Pernis can process 400,000 barrels a day, the most in Europe. Valero Energy Corp. is closing all the main production units at its 220,000-barrel-a-day Pembroke refinery in Wales while the only crude unit undergoes an eight-week turnaround.
Gasoline stockpiles in independent storage in Amsterdam- Rotterdam-Antwerp, Europe’s oil-trading hub, dropped to the lowest level in almost a year, data from PJK International BV show. Inventories fell 14 percent to 558,000 metric tons in the week to Sept. 27, the least since Oct. 6.
Petroleos de Venezuela SA’s 645,000-barrel-a-day Amuay refinery, the biggest in the Western Hemisphere, is running below capacity after an Aug. 24 explosion, reducing supply in the Caribbean and South America and increasing demand for cargoes from Europe and the U.S. Gulf.
Traders have been betting on scarce supplies for months. Net-long positions held by hedge funds and other large speculators increased 62 percent to 80,858 contracts on Sept. 25 from July 17, Commodity Futures Trading Commission data show.
Money managers have held an average long position this year of 74,087 contracts, up from an average of 41,715 during the same period in the previous five years.
“The net length held by money managers normally declines as summer driving season ends,” Khan said.
Consumption of gasoline in the week ended Sept. 28 was 8.72 million barrels a day, 1.1 percent below last year, according to MasterCard’s SpendingPulse report.
The premium of gasoline over West Texas Intermediate crude oil, or the crack spread, which gives an indication of the profit refiners may earn from making fuel, was $30.45 a barrel at the end of September, more than three times the $8.51 average of the past five years, encouraging refiners to boost output. The spread was $29.44 a barrel today.
“When refineries restart those units, they’re going to run quite hard because U.S. margins are some of the highest since 2008,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consultant in London. “You’re going to continue to see strength in prices the next couple of weeks as refineries are still out, but early November onwards you can expect them to moderate.”