February 12, 2010 – Six weeks ago, the
December 23, 2009 issue of
This Week in Petroleum focused on the declining trend in gasoline prices
from early November through mid-December. However, gasoline prices soon
reversed course, and rose more than 16 cents in the following three weeks,
before, once again, turning downward. These fluctuations highlight the
difficulty of forecasting short run movements, as well as the complexity and
occasional unpredictability of petroleum markets.
Petroleum product price movements are influenced in part
by underlying crude oil markets, as well as by additional influences on a
particular product market that can either offset or amplify the effect of
changes in crude oil prices. Thus, if crude oil prices are stable, gasoline
prices tend to rise in the spring and decline in the fall, in concert with
the gasoline supply/demand balance, while prices for heating fuels generally
do the opposite.
In this case, crude oil prices, which had briefly
dropped below $70 per barrel (for West Texas Intermediate) in mid-December
2009, rose above $83 per barrel during the first week of January 2010, an
increase of about 32 cents per gallon.
Accordingly, gasoline wholesale spot prices jumped more
than 30 cents per gallon over the same period, while retail prices, which
lag changes in spot prices, rose 16 cents. Since late in the first week of
January, petroleum spot and futures prices have fallen by about $9 per
barrel (or around 22 cents per gallon), while spot gasoline prices fell by
about 19 cents per gallon. The average retail regular gasoline price of
$2.66 per gallon in EIA’s latest weekly retail price survey reflects a
decline of 9 cents per gallon over the last three weeks, with further
downward pressure likely, assuming crude oil prices remain at current
Although a major shift in winter weather has relatively
little impact on gasoline demand, its impact on heating fuels, in the United
States and globally, is one factor that can affect crude oil markets. Early,
severe winter weather likely played a part in the year-end uptick in crude
oil prices, along with other factors, including increased optimism over the
pace and sustainability of U.S. and global economic recovery, and its
expected impact on petroleum demand in the coming months. By mid-January,
however, temperatures had moderated; U.S. average heating degree-days for
the week ending January 23 were 21 percent warmer than normal, compared to
24 percent colder than normal only two weeks earlier.
What, if anything, do the fluctuations of the past month
portend for the remainder of the winter? Weather will be a factor – despite
recent milder temperatures, some of the coldest winter weather usually
occurs in February, so significant heating demand is yet to come.
Additionally, the pace of economic recovery and
expectations regarding future economic trends will continue to be an
influence, here and abroad, while high inventories and lackluster demand,
among other factors, will tend to restrain prices. Beyond these factors, EIA
is also interested in assessing the role of other market influences, such as
speculation, hedging, investment, and exchange rates, as discussed in the
January 27 issue of
This Week in Petroleum.
While the very recent direction of U.S. petroleum
markets in general, and gasoline prices specifically, has been moderately
downward, it would not be too surprising to see further changes in direction
over the remainder of the winter.