Gasoline Falls to Two-Month Low as Supply Climbs on Lower Demand

Jan 16, 2014 3:58 pm ET

Jan. 16 (Bloomberg) -- Gasoline, the worst performer in the Standard and Poor’s GSCI index this year, sank to a two-month low in New York as nationwide inventories surged to an 11-month high amid lower driving demand during the winter.

Prices tumbled as U.S. stockpiles of the fuel climbed 6.18 million barrels to 233.1 million in the week ended Jan. 10, the highest level since Feb. 8, according to the U.S. Energy Information Administration. Demand over the past four weeks averaged 8.59 million barrels a day, the least since May. Consumption may fall through January as below-normal temperatures are forecast to sweep across the Eastern U.S.

“We had such a large build in inventories last week, which was a function of the lack of demand because of snow and ice on the roads that prevented people from driving,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “Demand is going to remain challenged for the next four to five weeks as we see more cold weather.”

Gasoline futures for February delivery dropped 3.13 cents, or 1.2 percent, to $2.5951 a gallon on the New York Mercantile Exchange, the lowest settlement since Nov. 12. Trading volume was 45 percent above the 100-day average at 3:20 p.m.

Prices have dropped 6.8 percent in 2014, the most of any contract in the S&P GSCI, which tracks 24 commodities.

The motor fuel’s crack spread versus West Texas Intermediate crude, a rough measure of the refining margin, narrowed $1.10 to $15.03 a barrel, a fourth consecutive drop. Gasoline’s premium to European benchmark Brent on the ICE Futures Europe exchange dropped $1.27 to $1.90 a barrel.

Low Temperatures

Average temperatures from the Midwest to New England are forecast to be at least 8 degrees below normal from Jan. 21 to Jan. 30 from a two-part shot of arctic air, according to MDA Weather Services in Gaithersburg, Maryland. Chicago’s low may fall to minus 4 (minus 20 Celsius) by Jan. 22, while lows on Jan. 23 include 12 in New York, 8 in Boston and 23 in Atlanta.

Below-normal temperatures, especially in Eastern and Midwestern cities, drive up use of natural gas and heating oil as more people heat home and businesses. It also diminishes gasoline demand as drivers avoid icy and wet road conditions.

Ultra-low-sulfur diesel rose 0.49 cent to $2.9845 a gallon on the Nymex on volume that was 63 percent higher than the 100- day average. Diesel is traded as a proxy for heating oil, which is used to heat about one-quarter of U.S. Northeast households.

Diesel’s crack spread versus WTI climbed 42 cents to $31.39 a barrel. The premium over Brent increased 25 cents to $18.26, according to data compiled by Bloomberg.

Regular gasoline at the pump, averaged across the U.S., fell 0.4 cent to $3.302 a gallon, according to Heathrow, Florida-based AAA. That was the fifth consecutive decline.

--With assistance from Brian K. Sullivan in Boston. Editors: David Marino, Margot Habiby