Bloomberg News

Gasoline May Have Peaked on Sliding Demand, Slow Job Growth

April 11, 2012

A motorist at a gas station in San Francisco. Photographer: Marcio Jose Sanchez/AP Photo

A motorist at a gas station in San Francisco. Photographer: Marcio Jose Sanchez/AP Photo

U.S. gasoline pump prices may have peaked for the year as demand slides, job growth slows and crude prices moderate.

Regular gasoline, averaged nationwide, has fallen five straight days to $3.915 a gallon, the longest streak since December, after surging 20 percent and peaking at $3.936 on April 4, according to data from AAA, the biggest U.S. motoring club. Americans have purchased 5.3 percent less gasoline so far this year than in 2011, data from credit-card receipts analyzed by MasterCard Inc.’s SpendingPulse showed yesterday.

Deliveries (DOEDMGAS) to wholesalers last week fell 5.4 percent from a year earlier, the Energy Department reported today. The department forecast consumption to decline to 8.65 million barrels a day in 2012, the lowest level in 11 years. The U.S. added the fewest jobs in five months in March, the Labor Department said April 6, limiting prospects for higher demand.

“Gasoline was the best-performing asset in the first quarter, but the sentiment is turning,” Amrita Sen, a London- based analyst at Barclays Capital, said by phone. “For the time being, our view is that it has probably peaked.”

Prices reached the highest level of 2011 at $3.985 on May 4, weeks before the U.S. Memorial Day holiday kicked off the traditional start of the summer driving season. The record retail price was $4.114 on July 15, 2008.

May Peak

Gasoline in the U.S. will peak in May at $4.01 a gallon, the Energy Department said yesterday in its monthly Short-Term Energy Outlook.

Gasoline futures have been the best performer this year in the Standard & Poor’s GSCI index of 24 commodities amid a surge in international crude prices as tensions built over Iran’s nuclear program, an improving U.S. job market and refinery shutdowns.

Futures have retreated 3.5 percent since reaching $3.4166 a gallon on the New York Mercantile Exchange on March 26, a 10- month high, after Federal Reserve Chairman Ben S. Bernanke said accommodative monetary policy is needed for the unemployment rate to continue declining.

Gasoline surged 27 percent through March 26, compared with a 10 percent gain for heating oil and an 8.3 percent increase for crude oil. The 2012 gain has been pared to 23 percent.

The government reduced its demand forecast yesterday. Consumption will average 8.65 million barrels a day in 2012, down from 8.74 million in 2011. That’s below last month’s projection of 8.67 million.

Iran Talks

Iran and the five permanent members of the United Nations Security Council plus Germany are scheduled to hold talks on the Persian Gulf nation’s nuclear program April 14 after a 15-month hiatus.

“Barring a blowup during the Iran talks over the weekend, the craziness is over,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said by phone.

The front-month Brent crude contract on London’s ICE Futures Europe exchange reached $128.40 on March 1, the highest since July 2008. It settled at $120.18 today. Brent is the benchmark for oil used in European refineries that export gasoline to the East Coast.

“The direction of crude price matters more than anything else,” said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC in Houston. “In a flat Brent world, I don’t think you can say gasoline prices have peaked. But for gasoline prices to go higher, you’re going to have to have better economic news.”

Eastern Refineries

Along the U.S. East Coast, Sunoco Inc. and ConocoPhillips idled last year money-losing refineries in Pennsylvania with a combined capacity of 363,000 barrels a day, or 24 percent of the region’s output. Sunoco has said it will shut its 335,000- barrel-a-day Philadelphia refinery by July unless it can attract a buyer.

“The sentiment overall has become a bit bearish,” Sen said.

The Energy Department increased its 2012 estimate yesterday, saying the average price would be $3.95 a gallon April through September, 2.5 cents higher than its forecast in March. Gasoline could surpass the 2008 record and reach as high as $4.25 this summer because of refinery shutdowns, said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts.

“It’s too early to say we’ve peaked,” Cohan said.

Less refinery capacity during the driving season will push prices past $4 toward the record, said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. At that point, expect the U.S. to release oil from strategic reserves to lower prices, he said.

“It worked last year because nobody expected it, but once you get around Memorial Day, I think you can expect it given that it’s an election year,” Schork said.

To contact the reporters on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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