(Energy Column news alert: SALT NRGI <GO>.)
Dec. 18 (Bloomberg) -- U.S. gasoline pump prices are poised to reach their lowest level this year as supply expands to a two-decade seasonal high and winter curbs demand.
Retail prices sank to a 33-month low of $3.179 a gallon on Nov. 11 before rebounding to $3.287 by Nov. 26. The average price has since fallen in 18 of the past 21 days to $3.216, according to AAA, the largest U.S. motoring club. Wholesale gasoline in markets from Chicago to Texas dropped to as low as 43.75 cents below futures last week, indicating consumers may spend less to fill their tanks through the New Year.
“We’re going to see significant increases in gasoline inventories the next few weeks,” said Andy Lipow, the president of Lipow Oil Associates LLC in Houston, who predicts gasoline will reach $3.15 by the end of the year. “Refiners will maintain their high rates of utilization while demand declines toward its seasonal low in January and February.”
Gasoline supplies jumped by 6.72 million barrels in the week ended Dec. 6 to 219.1 million, the most for early December since 1993. Refinery rates reached a nine-year seasonal high. Futures on the New York Mercantile Exchange declined 1.4 percent this month through yesterday, heading for the first December drop since 2008, when the U.S. was mired in recession.
Futures gained for a third day, adding 1.9 percent to settle at $2.6973 a gallon on the Nymex.
“We have way too much supply and too much capacity,” said Amrita Sen, the chief oil market strategist at Energy Aspects Ltd., a research company in London. “Even if demand is stronger than expectations, supply will be more than enough.”
Periods of colder-than-normal weather through the end of the year may keep drivers off the roads. Demand dropped by 525,000 barrels to 8.35 million barrels a day in the week ended Dec. 6 as an icy storm knocked out power from Texas to Tennessee.
The central U.S. from Minnesota to Texas has an elevated chance of lower-than-normal temperatures from Dec. 22 to Dec. 26, according to the U.S. Climate Prediction Center. An area along the Canadian border from Michigan to Maine also has a higher chance for cold readings. Temperatures in the Northeast will be about 3 degrees below normal from Dec. 27 to Dec. 31, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said yesterday.
Higher production and supply bottlenecks have contributed to regional weakness in spot prices and helped depress the national pump price average.
In the Midwest, refineries ran at 97.9 percent of capacity in the week ended Dec. 6, processing a record 3.69 million barrels of crude a day, according to government data. Buckeye Partners LP said it had more orders than space to ship refined products in November, December and January on its pipeline from the Midwest to Pennsylvania.
“We’re seeing weakness in most of the cash markets outside New York Harbor, suggesting there’s a lot of supply,” said Mark Anderle, a trader at Truman Arnold Cos., a wholesaler based in Dallas. “It’s a bad time of the year for demand and there’s lots of bad weather.”
Conventional 85-octane gasoline for prompt delivery in the Midcontinent, which runs from Oklahoma to Minnesota, was 41.25 cents below Nymex futures yesterday, according to data compiled by Bloomberg. Conventional, 85-octane gasoline in Chicago averaged a 33.17-cent discount in December, on track for the largest monthly gap on record.
On the Gulf Coast, home to about half of U.S. refinery capacity, gasoline inventories jumped 2.69 million barrels to 74.9 million in the week ended Dec. 6, an eight-week high. Dense fog caused several shutdowns of the Houston ship channel, slowing the flow of tankers carrying gasoline and diesel abroad. Regular gasoline was 16.25 cents below futures yesterday after sinking to a five-month low of 27.5 cents on Dec. 12.
“The key there is you may have some impressive regional differences in prices,” Lebow said. “The Midcontinent and the Gulf Coast are going to be weaker than the rest of the country. On the Gulf, it looks like the bottleneck there is on the docks.”
Expanding online retail sales indicate more shoppers may be choosing to shop at home for the holidays and avoid the cold and snow in some areas of the country.
Online shopping surged about 20 percent to a record on Dec. 2’s Cyber Monday. Internet retail sales on the Monday after Thanksgiving rose to almost $2 billion, according to ComScore Inc. That made it the heaviest Web-spending day ever for the fourth consecutive year. Amazon.com Inc.’s Cyber Monday same- store sales jumped 46 percent.
West Texas Intermediate crude fell 1.1 percent on Dec. 13 to finish last week at a 10-day low. Nationwide crude supplies are the highest for this time of year in records going back to 1982, government data show.
“Sales via Amazon are going to be at record highs, we’re swimming in crude oil and winter weather over vast amounts of northern latitudes is squelching a holiday pickup in demand,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.
The EIA reported today that inventories grew another 1.34 million barrels last week to 220.5 million.
“The setup for consumers couldn’t be any better with the utilization rate as high as it is,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “We should see further rises in inventory into the new year. These are some pretty big demand weeks coming up, which could get snuffed out by the snow and cause inventories to build up more.”
Gasoline in Arkansas, Kansas, Minnesota, Missouri and Oklahoma is already under $3 a gallon. Missouri has the lowest price at $2.871. Michael Green, a Washington-based spokesman for AAA, said in mid-November when prices slid to a 33-month low that there appeared to be a chance that the average pump price could fall to $3 a gallon before the new year.
“They’re not going to get to $3 anymore,” Green said on Dec. 16. “The new hope is that we will set a new low for the year. We’ve been having very small declines so the best case is $3.10 to $3.15.”
Fuel use: NSE OIL PRODUCT DEMAND <GO> Gasoline stories: NI GASOLINE <GO> Oil product inventories: TNI OILPROD INV <GO> Refinery margins: NSE OIL GASOLINE REFINERY MARGIN <GO> Top oil stories: OTOP <GO> Oil Market Stories: NI OILMARKET <GO> Gasoline Stories: NI GASOLINE <GO>
--With assistance from Christine Harvey in New York, Dan Murtaugh in Houston and Brian K. Sullivan in Boston. Editors: Richard Stubbe, Dan Stets