Drivers start your engines! Let the summer driving season begin. Despite all the talk of $4 per gallon gasoline this summer, more and more it looks as though retail gasoline prices have peaked for the season.
Even yesterday's drawdown in supply, drop in refinery runs and gasoline production runs might be expected as gas goes up on the racks as refiners and retailers get ready for the official kickoff of the summer driving season on the Memorial Day weekend. The Energy Information Agency, that awesome division of the Department of Energy, reported a steeper than expected drop in gasoline supply by saying that it fell by 2.8 million barrels last week against a backdrop of falling refinery runs which fell 1.2% to 88.4%. Gasoline production also fell, averaging 9 million barrels per day. Yet at the same time the report reminded us of our abundance as total gasoline supply is still well above the fiver year average. And it is not like the refiners have no incentive to produce more gas. They absolutely do as the gas crack, according to Bloomberg News, is at a profit for refining oil into gasoline and it rose to a 15-month high. Besides as Bloomberg also points out, the bulk of last week’s gasoline drawdown was on the West coast where supply fell by a whopping 2.1 million barrels and was most likely caused by the deadline in California to switch to the summer grade blends by May 1, 2010.
Increasing gasoline prices as of late have really been a function of rising oil prices which according to the EIA is about 69% of what you pay for in a gallon of gasoline. We know that crude has risen as of late despite more than ample supply as it was being impacted by the weakness in the dollar and the global economic crisis as a whole. The EIA, in their Short Term Energy Outlook, predicted that EIA forecasts for regular-grade motor gasoline retail prices will average $2.94 per gallon during this summer's driving season (the period between April 1 and Sept. 30), up from $2.44 per gallon last summer. The summer gasoline price forecast is up very slightly ($0.02) from last month. As far as oil goes, we have the International Energy Agency lower demand expectations and OPEC cheating on the rise. What is wrong with this picture here? Very bearish!
We still feel the best way to trade the market is to trade the range!
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org