US gasoline prices
Prompt gasoline futures traded on the NYMEX (New York Mercantile Exchange) closed ~2.5% lower on a weekly basis at ~$1.37 per gallon in the week ended November 6, 2015. Prices on Friday, October 30, were ~$1.41 per gallon.
US gasoline prices mirrored crude oil prices and fell initially during the week. However, after disruptions on the Colonial Pipeline, a major refined fuel pipeline, prices soared on Tuesday, rising ~5% as the graph below notes. Soon after, gasoline prices continued their descent, mirroring crude oil. But unlike crude oil, prices turned slightly upward at the end of the week, as the markets took in the larger-than-expected decline in gasoline inventories as reported by the EIA (U.S. Energy Information Administration). You can read about the latest gasoline inventory trends in US Gasoline Inventories Continue Descent: Week Ended October 30.
Why gasoline prices matter
Lower US gasoline prices may dissuade refiners such as 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 can choose to decrease their 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 2015. 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 would remain flat compared to consumption figures in 2015. The next STEO will come out on November 10, 2015.