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With the end of the summer driving season just around the corner, traders and investors on Monday drove gasoline prices to an eight-month low on U.S. commodities markets, providing the latest sign of pessimism about the economic recovery.
The sagging commodity market price for gasoline is good news for American motorists, promising a mild easing in pump prices. It also marks the end of a summer of relative stability for retail gasoline prices, which have fluctuated by about 20 cents per gallon since the beginning of the year and have stayed in an 8-cent range for the past 69 days.
Prices have been stuck in neutral because of the continuing weak global economy and fundamental shifts in the U.S. gasoline market, the world's biggest.
The surge in U.S. consumption that many refiners expected earlier this year has not materialized. Last week, the American Petroleum Institute reported that in July, U.S. gasoline deliveries (a measure of demand) were 9.3 million barrels a day, down slightly compared with July 2009. Except for 2008, it was the lowest July gasoline demand number since 2003.
A lack of consumer confidence and continuing high unemployment have kept people cautious about spending and traveling. "With unemployment high and July regular gasoline prices more than 20 cents a gallon above those a year ago, consumers likely have been shopping and vacationing less and trimmed their gasoline purchases accordingly," said John Felmy, the institute's chief economist.
But long-term trends -- such as improvements in the fuel efficiency of American autos -- played a part too, other analysts said. A steady increase in the biofuels component of U.S. motor fuel is another reason; the four week average for ethanol production ending Aug. 13 was 854,000 barrels a day, up nearly 18 percent from a year ago and now more than 9 percent of the volume of motor fuel, according to the Renewable Fuels Association.
With consumption lackluster, U.S. oil companies have been left holding much bigger than usual inventories of gasoline. That, combined with renewed pessimism about U.S. economic prospects, has prompted traders to increase their short selling of gasoline -- betting on a further decline in prices. Short positions jumped 20 percent in the week ended Aug. 17, according to figures compiled by Barclays Capital.
Crude oil prices have also tumbled after a brief surge. The price of a barrel of the benchmark West Texas Intermediate type of crude for delivery next month stood at $72.70 at the end of Monday, down from $82.55 on Aug. 3.
"What is amazing is the degree to which the trading community failed to understand that the gasoline season ended at Memorial Day weekend," said Edward Morse, a veteran oil analyst at Credit Suisse who has been predicting stable prices for months. "All the evidence was in sight that the market was going to be oversupplied."
Morse said that refinery output was "too high, Europe was exporting too much [fuel], biofuel blending components were rising, and the fuel efficiency of the fleet has grown remarkably in the past four years."
The American Automobile Association said Monday that the average retail price of a gallon of regular gasoline eased to just under $2.71 a gallon, down more than 4 cents from a week ago and up only 8 cents from a year earlier, when the economy was more deeply mired in recession.
There have been some signs of economic recovery, however, in petroleum statistics recently. The Petroleum Institute said that there was an 11.6 percent increase in deliveries of low sulfur distillates, which are primarily diesel fuels used in trucking, and a 6.9 percent increase in kerosene jet fuel deliveries. The price of diesel fuel also fell 4 cents a gallon in the past week, but it has climbed 28 cents from a year ago.
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