US gasoline prices
Prompt gasoline futures traded on NYMEX (New York Mercantile Exchange) closed ~1.8% lower on a weekly basis at ~$1.30 per gallon in the week ended October 23, 2015. Prices on Friday, October 16, were ~$1.33 per gallon.
US gasoline prices mirrored crude oil prices and began falling early last week. They fell to their lowest in six years on Monday. Prices also fell on expectations of lower demand.
Demand usually starts slowing down in the fall as the weather starts cooling and drivers take fewer vacations. However, prices soon started recovering on expectations of a decline in gasoline inventories in the EIA (U.S. Energy Information Administration) report, which comes out every Wednesday. Inventories did decline, even more than expected. This helped gasoline prices recover from previous lows.
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 ~8.6% of the Energy Select Sector SPDR ETF (XLE).
When gasoline prices fall, refiners could choose to lower production, provided nothing else, mainly crude oil prices, changes. Lower production levels would mean lower volumes for MLPs such as 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 STEO (Short-Term Energy Outlook) report released on October 6, the monthly average gasoline retail price reached $2.37 per gallon in September. This is $0.27 less than the August average. Retail prices differ from futures prices that we mentioned above. They include the added costs of taxes, distribution, and marketing.
The EIA expects the monthly average to be $2.03 per gallon in December 2015 and $2.38 per gallon in 2016. Prices averaged $3.36 per gallon in 2014.
The EIA also forecast that gasoline consumption will remain flat compared to consumption figures in 2015.
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