Bloomberg News

Gasoline Surges to Six-Week High on Fed Stimulus Expectations

July 16, 2012

Gasoline rose to a six-week high on speculation that weakening U.S. retail sales will prompt the Federal Reserve to act to boost the economy, which may improve fuel demand.

Futures jumped 1.4 percent as retail sales fell a third straight month in June, Commerce Department figures showed. Federal Reserve Bank of Atlanta PresidentDennis Lockhart said on July 13 the central bank may need to initiate more asset purchases if recent economic weakness persists. Brent crude gained as much as 1.3 percent, increasing the cost of shipments of fuel from abroad and imported oil used at U.S. refineries.

“The retail sales number was so bad, it gives more credence to the idea that the Fed will have to add more stimulus,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

August-delivery gasoline rose 3.86 cents to $2.8547 a gallon on the New York Mercantile Exchange. That’s the highest settlement since May 30 and culminates the first four-day streak of gains since Feb. 24.

Brent for August delivery climbed $1.15, or 1.1 percent, to $103.55 a gallon on ICE Futures Europe exchange. The contract expired today. The more-active September contract rose $1.95 to $103.37. The premium for September Brent crude over U.S. benchmark West Texas Intermediate oil widened 64 cents to $14.56 a barrel.

Brent Strength

“The strength of Brent is the primary support for the product markets,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The WTI-based cracks are also strong because half that margin is the Brent-WTI spread.”

Gasoline’s premium to WTI, or the crack spread, based on August contracts, widened 29 cents to $31.47 a barrel.

The 0.5 percent decline in June retail sales followed a 0.2 percent drop in May. Purchases last fell for three or more months in July through December 2008.

The retail sales report will influence Fed Chairman Ben Bernanke’s testimony to the Senate Banking Committee tomorrow, Pierpont securities economist Steven Stanley wrote in a note to clients. Bernanke is scheduled to discuss the outlook for the economy and monetary policy. The Fed under Bernanke bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 to stimulate the economy.

“It seems for oil market, more and more, we’ve put in a Bernanke premium ahead of his speeches,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

IMF Forecast

The International Monetary Fund cut its 2013 global growth forecast today to 3.9 percent, less than the 4.1 percent estimate in April, in an update of its World Economic Outlook.

The fund said a U.S. rebound is moderating, the outlook is deteriorating for developing economies and global growth could suffer further if European policy makers put off measures agreed on at a June summit to arrest the region’s instability.

The inflation rate in the 17-country euro area was at 2.4 percent in June, the same as in May, matching the lowest level since February 2011, the European Union’s statistics office in Luxembourg said today.

A gauge of investor confidence in Germany, the region’s biggest economy, slid to minus 20 this month from minus 16.9 in June, the median estimate of 38 economist estimates in a Bloomberg News survey showed before tomorrow’s release.

China’s Premier Wen Jiabao warned that the nation’s recovery is yet to build up momentum, fueling speculation that extra economic support measures may be announced after a cabinet meeting this week.

“The expectation is that the Chinese government will do something to boost their economy,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

August-delivery heating oil climbed 3.95 cents, or 1.4 percent, to $2.8277 a gallon on the exchange. It was the highest settlement since May 25.

Regular gasoline at the pump, averaged nationwide, was unchanged at $3.396 a gallon, according to AAA. Prices have risen every day but two since July 1, gaining 7 cents. Gasoline reached a year-to-date high of $3.936 on April 4.

To contact the reporter on this story: Barbara J Powell in Dallas at

To contact the editor responsible for this story: Dan Stets at

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