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May 16, 2013

Falling Gas Prices Lead to Deflation

 

The most recent reporting of the Consumer Price Index found an unexpected drop in inflation – almost entirely attributable to the degree to which gas prices have fallen in recent months. CNN Money reports:

“The Consumer Price Index, a key measure of inflation, fell 0.4% in April, according to the Labor Department. Compared to a year earlier, prices are up only 1.1%, a level of inflation that’s considered rather low.

Falling gas prices were the main driver for the broader decline for the second month in a row, the Labor Department noted.

The average price for a gallon of unleaded gas fell by about 13 cents in April, ending the month at $3.51, according to AAA.”

However, this trend may represent some other issues in economic stability. According to the USA Today:

‘Subdued demand means that core inflation is likely to edge lower, as retailers will be forced to pass previous falls in raw material costs onto customers,’ Paul Dales, an economist at Capital Economics, said in a note to clients. ‘The Fed may soon put more emphasis on fading inflation trends.’

As evidenced by the sustained, region-wide rise in prices through much of the Northern Midwest, these overall trends are often bucked by short term price shocks. It is unwise for fleet managers and consumers alike to take lower current prices as an indication of future costs.

Filed under:Fuel Price Trends,Gas price,Price Shocks | by Eyes on Energy @ 5:20 pm | 

May 14, 2013

US Gas Prices Expected to Remain Low Through Summer

 

The Energy Information Administration forecasts domestic prices at the pump to remain lower through the summer of 2013 as a result of a spike in supply over the last several months. The EIA projects:

“Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on February 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month’s STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014.”

The ramped-up exporting of domestic petroleum will also serve to exacerbate this trend. NPR reporter Daniel Karson reports:

“… increased U.S. petroleum exports could keep domestic prices from taking a sharp dive, despite a slight slump in demand.

‘U.S. refineries are also exporting a record amount of diesel and gasoline to developing countries, including China, where demand for diesel is through the roof,’ Diane reports.

Oil industry analyst Patrick DeHaan tells Diane that if gas companies ‘build domestic inventories too much, it will hurt their bottom line. Maintaining exports while not allowing inventories to grow out of control, is what they’re likely trying to accomplish.’”

Still, it is imperative to mind the potential for geopolitical developments to undercut currently forecasted trends. As the EIA notes in its own report: “Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the projected levels.”

Filed under:Fuel Cost Control,Fuel Price Trends,Gas price | by Eyes on Energy @ 6:15 pm | 

February 27, 2013

Talks to Resume Over Iranian Nuclear Program

 

Diplomatic talks have resumed this week over the ongoing nuclear weapons program in Iran. One would think this would be a good sign, as increased tension with Iran so frequently results in threats to close the extremely important Strait of Hormuz. However, it appears that nobody is expecting much to come from these negotiations. The New York Times reports:

When Iran’s nuclear negotiating team sits down with its Western counterparts in Almaty, Kazakhstan, on Tuesday, it will offer no new plans or suggestions, people familiar with the views of the Iranian leadership say. More likely, they say, the Iranian negotiators will sit with arms crossed, demanding a Western change of heart.

Iran’s leaders believe that the effects of Western sanctions have been manageable, and Iran continues to make progress on what it says is a peaceful nuclear energy program. And Iran’s leaders see that North Korea, which openly admits that it wants nuclear weapons, has performed three nuclear tests without suffering any real penalties.

As a result, Iran’s leaders feel that they, not the West, hold the upper hand in negotiations.

This attitude has reflected poorly on the status of the negotiations already. Again, the New York Times claims that all parties are skeptical that the talks will result in any fruitful negotiations.

The ultimate goal of talks with Iran is to get the country to comply with Security Council resolutions demanding that it stop enrichment altogether until it can satisfy the International Atomic Energy Agency that it has no weapons program and no hidden enrichment sites. In return, all sanctions — which have so far cost Iran 8 percent of its gross domestic product, sharply increased inflation and collapsed the value of the Iranian currency, the rial — would be lifted.

No one expects that kind of breakthrough in this round, especially with Iranian presidential elections coming in June and any major concession likely to be perceived as weakness. But the hope is for an incremental movement toward Iranian compliance in return for a modest lifting of sanctions.

…Senior Western diplomats have said that this meeting would be a low-level success if it produced a specific agreement to meet again soon, or to meet more often at the technical level, so that there would be an element of momentum to the negotiations.

The six nations talking with Iran have remained united and share an impatience over what they perceive to be its delaying tactics. The Russian envoy, Deputy Foreign Minister Sergei Ryabkov, who has been most opposed to increasing sanctions, said that time was running out for the talks. He told the Interfax news agency that easing sanctions would be possible only if Iran could assure the world that its nuclear program was for exclusively peaceful purposes.

“There is no certainty that the Iranian nuclear program lacks a military dimension, although there is also no evidence that there is a military dimension,” he said.

It could be expected that gas prices may move slightly higher if these talks do inevitably break down. However, as of this moment none of this appears to be having much of an effect on the market. Instead, fears of a cyclical price increase appear to overshadow any price shocks for the near future.

Filed under:Fuel Cost Control,Gas price,Price Shocks | by Eyes on Energy @ 1:37 am | 

February 23, 2013

National Average Prices Drop One-Tenth of a Cent: Does it Matter?

 

American Automobile Association found the national average gas price dropped for the first time in 36 weeks.  However, it only dropped a remarkably modest tenth of a cent. Is this actually a significant move in prices? According to CNN:

“The national average price for regular unleaded gas dropped on Saturday by a 10th of a cent, snapping a streak of 36 consecutive daily increases…During that stretch, the average price increased 48.8 cents or 14.82%. The price fell to $3.78 Saturday.”

While it’s dubious whether such a small decrease could really be as drastic as “snapping” at 36 week streak, it is worth looking more closely at regional patterns. For example, a recent report from the AAA branch in the Mid-Atlantic seems to contradict the idea that national averages are on the decline:

“…the average price of a gallon of regular gasoline in New Jersey on Friday was $3.63, up 6 cents from last week. That’s also higher than the price from a year ago, when motorists were paying $3.54.”

Furthermore, the same report points out that the one-tenth decrease in price may not be significant in the context of larger trends – and for good reason:

“[The national average is] higher than the national average from a year ago, when motorists were paying $3.61. Analysts say the higher gas prices are mainly due to the trend of refineries across the U.S. performing seasonal maintenance and making the switch-over to summer blend gasoline production earlier than normal.”

It appears that in their haste to break news, this CNN blogger has overhyped a report that is – in fact – consistent with our expectations based on seasonal patterns. As with all things, it is absolutely necessary to base conclusions off of the best data available, and not to fit any sort of agenda.

Filed under:Fuel cost,Fuel Price Trends,Gas price | by Eyes on Energy @ 8:02 pm | 

February 15, 2013

Seasonal Shift Signals Coming Rise in Price

 

A spokesperson for the American Automobile Association announced today that their organization has predicted prices at the pump to increase steadily in coming months. Kearny Hub reports:

“Mid-February typically is when gas prices begin to move higher in advance of summer’s increased demand, said AAA spokesman Gene LaDoucer of North Dakota. The switch to more expensive summer blends also is under way, he said. Fortunately, the pace of price hikes should slow.Experts expect this year’s national average to peak below $3.80 per gallon, well off 2012’s average high of $3.94, LaDoucer said.”

This prediction is in line with current patterns, as frequent drivers would be keen to notice. Southern California is one of the hardest hit areas of the country. There, prices have continues to rise for three straight weeks – with no indication of stopping. According to ABC News:

“According to figures from the AAA and Oil Price Information Service, the average price has increased 47.2 cents during the 22-day streak, the longest since a 27-day-long period of price increases from Feb. 7 to March 4.

The average price for a gallon of regular gas in the Los Angeles and Long Beach area is now $4.22 per gallon, which is up 53 cents since last month. In Orange County, drivers are paying $4.21 a gallon. In the Inland Empire, the average is $4.18. In Ventura County, the average hovered near $4.21.

Analysts say the increase is the result of low levels of production in Southern California due to refinery maintenance.”

While market forces are driving the current price increase, there is always the potential for unforeseen events to cause sudden spikes. All things considered, the ability to lock into today’s prices would be an enormous benefit to drivers and fleet managers alike.

Filed under:Fleet Managers,Fuel Price Trends,Gas price | by Eyes on Energy @ 6:43 pm |