US gasoline prices
Prompt gasoline futures traded on NYMEX (New York Mercantile Exchange) closed 1% lower on a weekly basis at ~$1.36 per gallon in the week ended September 18. Prices on Friday, September 11, 2015, were ~$1.37 per gallon.
US gasoline prices mainly fell on Monday on concerns that there will be a gasoline glut as the busy summer driving season winds down. Prices fell to their lowest in eight months. Then, gasoline prices mostly mirrored crude oil prices. The drop in the latter part of the week was fueled by a surprise increase in gasoline inventories. Read US Gasoline Inventories Up Suddenly in Week Ended September 11 to learn more about the latest gasoline inventory trends.
Why gasoline prices matter
Lower US gasoline prices may dissuade refiners like Tesoro (TSO), Marathon Petroleum (MPC), and Valero Energy (VLO) from producing more gasoline. However, the price of crude oil is also a consideration when refiners determine their production levels.
Gasoline prices loosely track changes in crude oil prices (USO), usually Brent crude oil prices, the international benchmark. Combined, Tesoro, Valero Energy, and Marathon Petroleum account for ~8.60% of the Energy Select Sector SPDR ETF (XLE).
When gasoline prices fall, refiners could choose to decrease production, provided that all else, mainly crude oil prices, doesn’t change. Lower production levels would mean lower volumes for MLPs like Tesoro Logistics (TLLP), MPLX (MPLX), and Valero Energy Partners (VLP) to transport. This could be negative for their revenues.
US gasoline price forecasts
According to the EIA’s (U.S. Energy Information Administration) STEO (Short-Term Energy Outlook) report released on September 9, the monthly average gasoline retail prices reached $2.64 per gallon in August. This is $0.16 less than the July average. Retail prices differ from the futures prices that we mentioned above. They include the added costs of taxes, distribution, and marketing.
The EIA expects the monthly average to fall throughout the remainder of the year. With the end of the summer driving season, prices are forecast to average $2.11 per gallon in 4Q15. They’re expected to average $2.41 per gallon in 2015 and $2.38 per gallon in 2016. Prices averaged $3.36 per gallon in 2014.
The 2016 price forecast is lower than in 2015. The EIA forecasts that gasoline consumption will remain flat compared to the consumption figures in 2015.