Gasoline slides most in seven weeks on prospect of Fed pullback

Gasoline slid the most in seven weeks, dropping along with crude and other commodities on concern the Federal Reserve will reduce economic stimulus and as data signaled China’s growth is slowing. Crack spreads narrowed.

Futures fell as much as 3.6% one day after Fed Chairman Ben S. Bernanke indicated the central bank may begin reducing its bond buying this year if the pace of economic recovery is in line with the Fed’s projections. Reports show China’s manufacturing shrank at a faster pace and its benchmark money-market rates climbed to records.

“Tapering off is like raising rates,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Banking issues and bad manufacturing in China are putting more pressure on the market.”

July-delivery gasoline fell 10.07 cents, or 3.5%, to $2.7917 a gallon at 1:28 p.m. on the New York Mercantile Exchange. Trading volume was 18% above the 100-day average for the time of day.

The Standard & Poor’s GSCI Index of 24 materials dropped 2.9% as the dollar rose against its 16 most-traded peers, reducing the investment appeal of commodities. July crude futures sank 3.1%.

Commodities Liquidation

“We’re seeing liquidation across the board in commodities,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “Obviously, the market was not anticipating a clear-cut timeline.”

Bernanke told reporters yesterday that the Fed will probably pare its $85 billion in monthly bond purchasing later in 2013 and end its quantitative easing program altogether around mid-2014. Bernanke said curbs to bond buying hinge on gains in the labor market and a pickup in growth.

The People’s Bank of China added 50 billion yuan ($8.2 billion) to the financial system today after a cash squeeze drove money-market rates to record highs, said Hao Hong, chief China strategist at Bank of Communications Co.

A preliminary reading of China’s Purchasing Manager’s Index for June dropped to 48.3, compared with the 49.1 median estimate in a Bloomberg News survey of 15 economists. In the U.S., factories in the Philadelphia region grew in June at the fastest pace in two years.

“U.S. manufacturing is potentially about to turn the corner but the global data is not getting better,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas- based energy consultant. “And a lot of folks are going to read Bernanke’s statements as a blueprint for the end of quantitative easing. There’s just a great deal of uncertainty.”

Crack Spreads

Gasoline’s crack spread versus West Texas Intermediate narrowed $1.29 to $21.95 a barrel. Gasoline’s premium over August Brent fell 62 cents to $14.36.

Gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.598 a gallon, Heathrow, Florida-based AAA said today on its website. Prices have fallen for eight straight days to the lowest level since May 14.

Ultra-low-sulfur diesel for July delivery fell 9.29 cents, or 3.1%, to $2.8796 a gallon on trading volume that was 3.7% below the 100-day average.

ULSD’s crack spread versus WTI fell 99 cents to $25.62 a barrel. The premium over Brent declined 34 cents to $18.44.

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