September gasoline (UGA) futures contracts rose 4% and closed at $1.78 per gallon on August 29, 2017—the highest settlement in more than two years. September gasoline futures contracts will expire on August 31, 2017.
The most active October gasoline (UGA) futures contracts rose 1.9% and closed at $1.60 per gallon. Gasoline futures rose due to the expectation of a drop in gasoline production due to Tropical Storm Harvey.
Higher gasoline prices have had a positive impact on refiners like Phillips 66 (PSX), Tesoro (TSO), Valero (VLO), Western Refining (WNR), and Marathon Petroleum (MPC). Gasoline and crude oil (IXC) (IYE) (ERY) prices diverged due to Tropical Storm Harvey on August 29, 2017.
Gasoline futures’ lows and highs
US gasoline active futures contracts hit a low of $1.01 per gallon on February 26, 2016—the lowest level in 12 years. Gasoline prices fell due to falling crude oil (BNO) (USL) (XES) prices and strong gasoline production between 2014 and 2016.
But on August 29, 2017, prices hit $1.78 per gallon—the highest level in more than two years.
US gasoline production
The EIA (US Energy Information Administration) estimates that US gasoline production rose 518,000 bpd (barrels per day) to 10.5 MMbpd (million barrels per day) between August 11 and August 18. Gasoline production rose 5.2% week-over-week and by 531,000 bpd, or 5.3%, year-over-year.
Citigroup estimates that gasoline production could drop more than 2 MMbpd due to the storm, and this could support gasoline prices in the short term. Higher gasoline prices could also support crude oil prices.
In the next part, we’ll assess gasoline demand.