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Low Retail Gas Prices Encourage Consumers to Travel this Summer
Around about Memorial Day weekend, gas prices began to steadily climb, increasing by 22 cents in just three weeks, but industry analysts suggest that the commodity has most likely peaked for the year. Retail prices often drop right around June as refineries finish up seasonal maintenance and switch to summer fuel grades, with prices declining by an average of 12 cents per gallon at this time over the last five years. The Energy Information Administration predicted the week of Memorial Day experienced the highest demand for gas since August 2007, and the lowered fuel prices are demonstrating the consumer’s desire to take more road trips during this season.
Other than refinery maintenance in June, the price of crude oil also plays a role in determining gasoline’s market performance. Production appears to be rallying in America as well as OPEC’s largest crude oil producing countries, including Iraq which has been receiving attention from engineering firms so that they can increase efficiency in Iraqi energy operations. Crude oil, being the key ingredient to gasoline, has evidently been stabilizing over the past few weeks which is leading industry experts to the conclusion that summer gas prices will be at their lowest since 2009.
Cheap gas has made smaller dents in consumers’ wallets, allowing them to take advantage of the $2.75 per gallon value and drive across the country for the summer vacation. Some have reported that it now only takes $40 to fill up their family cars, a stark contrast between their expenditure around this time last year when they had to pay $55. But not all consumers seem to be too happy with low gasoline prices. Tyler Morning Telegraph interviewed Ronald and Vivian Deshotels who were fueling up at a station along Interstate 20. Vivian expressed her concern for all the layoffs while Ronald added on why we need the higher prices, saying, “I like the high prices. It puts more rigs out there.”
Although history indicates that fuel prices will decline soon, gas can be just as unpredictable as oil. Prices could certainly rise this season due to factors such as prolonged fighting in the Middle East, hurricanes in the Atlantic, and unexpected interruptions in major gas refineries.
Published in CSP Daily News By-Samantha Oller, Senior Editor/Special Projects Coordinator
KANSAS CITY, Kan. — As a Kansas federal judge prepares to evaluate proposed settlements from long-running litigation involving “hot fuel” this summer, many of the industry’s largest fuel retailers— QuikTrip, Circle K, Kum & Go, Sheetz, Wawa and 7-Eleven, among them—have filed an objection over the terms.
In a class-action lawsuit dating back seven years, plaintiffs had charged that more than two dozen fuel retailers were shortchanging customers who purchased “hot fuel”—referring to the fact that the volume of gasoline rises along with its temperature. Consumers were, in effect, paying a full gallon price for less than a gallon of fuel, plaintiffs alleged, because these retailers did not have automatic-temperature-compensation (ATC) devices installed at the pump that would adjust the price based on the fuel volume and did not alert consumers to the fuel’s temperature.
More than two dozen fuel retailers, ranging from major oils to retail chains such as Casey’s General Stores, Sam’s Club and Valero, had settled on the case, although they denied any wrong-doing. Three different settlement groups emerged. Six of the companies, including the major oil companies, agreed to settlements that would put $22.925 million into a fund to reimburse retailers for installing ATC equipment. Four of the defendants, including Casey’s and Valero, agreed to settlements to install ATC pumps at their branded sites over time. And the remaining 18 defendants—including CITGO and Thorntons—agreed to pay into a fund totaling $1.577 million that would help state weights and measures agencies ensure ATC upgrades were done lawfully.
But as U.S. District Court Judge Kathryn H. Vratil prepares to review the proposed settlements this June, two objections were filed this week on the terms, according to court documents obtained by CSP Daily News. One of the objections comes from more than a dozen of the industry’s largest petroleum-retail chains; another is led by Theodore Frank, founder of the Center for Class Action Fairness, according to Law.com.
According to the objection filing by the retail chains, one big problem with the settlements is the fact that consumers would get none of the payments. Nearly two-thirds of the settlement money going to fuel wholesalers and retailers.
Both objections also cite the payments going into a fund for weights and measures agencies as especially problematic. Because no states yet approve of ATC for motor-fuel retail sales, the objectors argue that the fund would influence regulators who might be opposed to ATC to change their positions in favor of legislation approving its use to receive the money.
The retailers’ objection filing describes it as “a de factoslush fund that will make payments to state governments if and when states change their laws in accordance with the named plaintiffs’, and plaintiffs’ counsels’, wishes,” and raised constitutional red flags.
Convenience retailers named in the objection include QuikTrip, 7-Eleven (which fought the litigation and won), Circle K, Kum & Go, Murphy Oil, Pilot Travel Centers, Flying J, RaceTrac, Sheetz, Speedway, The Pantry and Wawa. Frank with the Center for Class Action Fairness, a law firm and nonprofit that represents consumers in class-action lawsuits, described the settlement as “uncomfortably close to political bribery.” “It’s a zero-dollar settlement,” Frank told Law.com. “The lawyers are the only people getting paid, and the relief is to require lobbying for a means of selling gasoline that would make consumers worse off.”
A hearing is scheduled for Tuesday, June 9, when Judge Vratil will determine whether to give final approval to the settlements.
January 6, 2015 By Brian Milne, Energy Editor, Schneider Electric
In the U.S., gasoline demand was the strongest in 2014 during the final full week of the year even though historically driving demand is greatest during the summer months, with demand during the fourth quarter averaging 90,000 bpd or 0.9% more at 9.11 million bpd than the June through August average.
In parsing gasoline data from the Energy Information Administration, implied demand, which refers to product supplied to the primary wholesale market, had their two strongest weeks in late December, with the third highest weekly demand rate occurring in late August. Moreover, four of the five weeks with the greatest weekly demand rate in 2014 were in the fourth quarter, arguing that low gasoline prices spur greater driving activity.
Retail gasoline prices are averaging more than $1 gallon less nationally than a year ago while down $1.40 or 40% from late June when the national average was $3.704 gallon. Slipping below $2.30 gallon on Dec. 29, the U.S. average could drop below $2 gallon during the first quarter.
The sharp price decline was spawned by growing oil production that not only has outstripped demand, but has created a growing glut of supply domestically and internationally. US crude imports continue to trend lower while oil product exports remain robust, including for gasoline exports, which averaged 354,000 bpd in December. Some of the crude that was previously shipped to the U.S. is looking for new markets, while tankers are again being used for storage, moored near key shipping ports and loaded with crude as they were during the Great Recession in 2009.
The plunge in crude oil prices joined by the abundance of supply has also prompted refiners to process more crude, with U.S. refiner and blender net production spiking over 10 million bpd in late December for the first time, EIA data shows. In late 2014, the EIA said spot gasoline prices, the primary wholesale market with rack postings the secondary wholesale market, are often the world’s lowest during fall and winter in the Midwest and Gulf Coast regional markets.
As the inventory bubble moves down the supply chain, the data on implied demand illustrates the change from a “just in time” inventory management strategy adopted by the US industry more than a decade ago and when the bull market in oil was in its early stages to “supply push” management. Akin with the adage “if you build it, they will come” dynamic, the added gasoline supply to the domestic market should continue to pressure gasoline prices in the near term while driving demand for the motor transportation fuel higher.
November 10, 2014 By Brian Milne, Energy Editor, Schneider Electric
For the first time since late 2010, the U.S. retail gasoline price average for regular grade slipped below $3 gallon, with the Energy Information Administration reporting a $2.99 gallon average on Nov. 3 in its weekly survey.
The average has more downside, with lower wholesale costs still working through the supply chain.
The national average seemed stuck above that psychological barrier, mostly straddling $3.50 gallon in what was viewed as the new normal. Even as U.S. crude production surged to a 28-year high, gasoline prices seemed stubbornly high, with wholesale gasoline values set by the international market and not domestic crude prices. Wholesale gasoline values are linked to Brent crude prices, with Brent reflecting the value of North Sea crudes.
For its part, Brent crude seemed stuck above the century mark amid geopolitical tensions, some of which led to supply disruptions as in the case of Libya. As those tensions eased, albeit they are resurfacing now, and the euro zone economy remained weak, limiting demand, Brent values tumbled below $100 bbl, trading in the mid to low $80s since mid-October.
Working in the background was building U.S. crude supply that was gradually wiggling free from the countryside despite restrictions on exporting those hydrocarbon molecules amid numerous infrastructure developments and by railing crude oil. Pipelines were constructed or repurposed, activity that continues, debottlenecking the supply chain to allow crude to reach the massive refining sector along the U.S. Gulf Coast, while crude was also railed to refineries along the East Coast and, at a slower pace, to the West Coast.
These improvements pushed out U.S. crude imports that are now well below the five-year average rate of 8.7 million bpd at 7.4 million bpd, and continuing to trend lower. Following the letter of the law, condensates—a very light oil that fetches a lower price than heavier grades, have also been exported this summer, bypassing the restriction on US crude exports because the hydrocarbon stream ran through a field stabilizer or other limited processing unit. Alaska North Slope crude has also been exported to South Korea, with the US crude restrictions on exports not valid in the 49th state.
Like a lumbering locomotive, the wave of new U.S. crude supply was loudly moving down the tracks, but its benefits still seemed to be in the distance. That changed when Saudi Arabia announced discounted selling prices for its crude this autumn instead of cutting production, an action the market interpreted as the kingdom’s efforts to maintain market share instead of supporting a higher price. Moreover, some analysts and traders have suggested the discounted prices are aimed at US producers, hoping to slow their output.
Coinciding with the sub $3 gallon average was a pop in implied gasoline demand, which surged 295,000 bpd to 9.162 million bpd during the final week of October—the highest weekly demand rate since the end of August. Gasoline marketers should hold their excitement since one week’s data doesn’t make a trend. However, lower gasoline prices have historically been linked to increased demand.
October 13, 2014 By Brian Milne, Energy Editor for Schneider Electric
Gasoline futures traded on the New York Mercantile Exchange are down nearly 30% from their June high to Oct. 10, and possibly more stunning have erased 19.3% of their value in 11 days from the late September high while the U.S. retail average for gasoline is down 1.6% from Sept. 29 to Oct. 6. Get ready for the pace of decline in retail prices to accelerate.
Moreover, the bear market that has laid siege on the crude market has upended expectations that global oil prices would be tethered to near $100 bbl, with the IntercontinentalExchange Brent crude futures contract already sinking below $90 bbl, as Saudi Arabia surprised many in the market. The recipe positions the U.S. retail average to break below $3 gallon, which would be the first time it breached the psychological benchmark since the end of 2010.
Saudi Arabia’s recent decision to slash prices for the crudes it sells instead of cutting production to slow the growing glut of oil supply signaled the de facto leader (due to its unique position as swing producer) of the Organization of the Petroleum Exporting Countries will look to save market share instead of supporting global oil prices near $100 bbl.
The oil market was already under pressure from weakening economies, especially in the euro zone where recession is coming closer to reality, while China’s economy slows. The U.S. economy is stronger than many had expected, but is seen vulnerable to a slower growth pace as other major world economies and trading partners struggle.
Slowing economic growth or outright contraction shrinks global demand for oil, with the Energy Information Administration last week downgrading their outlook for world oil consumption by 83,000 bpd to 91.469 million bpd for this year and by 182,000 bpd in 2015 to 92.706 million bpd.
The slowing demand is coming just as rapid growth in US oil production is being felt globally, having already cut to near zero U.S. imports from West Africa from 2.5 million bpd in January 2008. Extra oil supply from Libya, which ramped up output a sharp 500,000 bpd over the summer to roughly 800,000 to 900,000 bpd, further balloons the glut in oil supply.
The relatively quick change in sentiment also comes as geopolitical threats to the supply of oil ease. In the case of the Ukraine crisis, affected demand has eroded with the adverse implications for the regional markets. Consider speculators held record length in the NYMEX West Texas Intermediate crude futures contract of 458,969 contracts on June 23, and have since cut that position 36% to a 15-month low at 293,683 contracts on Oct. 7.
The NYMEX Reformulated Blendstock for Oxygenate Blending futures contract is down 92.53cts or 29.4% from the 2014 high of $3.1520 gallon registered June 23 to Oct. 10’s $2.2267 gallon nearly four-year low. From September’s $2.7577 gallon high set on the 25th, the contract is down 53.1cts or 19.3%.
EIA’s U.S. retail average for all formulations of regular grade gasoline was $3.299 gallon on Oct. 6, an eight-month low, down 5.5cts or 1.6% from the prior week while down 41.4cts or 11.2% from its annual high of $3.713 gallon reached April 28. The retail average should quickly drop below $3.20 gallon, and continue down from there and challenge $3 gallon.
The NYMEX RBOB futures contract should see some support to slow the downturn from spread trades, with the RBOB crack—RBOB minus WTI or Brent crude futures—at a one-year low. Refiners are now moving units into autumn turnarounds for seasonal maintenance, which cuts the demand for crude and the output of gasoline. This triggers sales of crude futures contracts and buying for RBOB futures contracts.
Lower retail gasoline prices could prompt greater demand for the motor transportation fuel, although the year-on-year growth rate has slipped. EIA data shows gasoline supplied to the primary market 65,000 bpd higher so far this year through October 3 than during the comparable timeframe in 2013, down 6,000 bpd from the previous week’s 71,000 bpd growth rate. In its more recent Short-term Energy Outlook released Oct. 7, EIA maintained its expectations U.S. gasoline demand would decline 20,000 bpd from 2013 to 8.82 million bpd this year. EIA downgraded its 2015 outlook, now expecting the consumption rate to slip 20,000 bpd instead of 10,000 bpd.
Consider, too, that gasoline demand during the fourth quarter 2013 looked to have finally gotten its mojo back, repeatedly topping the five-year average as the economy was gaining momentum ahead of the bitter cold weather that gripped much of the nation in the first quarter.
World oil prices could get a bounce as the Islamic State sets its eyes on Baghdad despite weeks of bombings by the US and several allies, deploying guerilla tactics as they make their gains. Nonetheless, led by US production growth in crude oil, at a better-than 28-year high, supply will continue to outpace demand and pressure prices.
But board has no plans to revise regulations, it says
WASHINGTON — A new report published by the Federal Reserve Board found that the overall average cost for debit-card transactions in 2013 was 4.4 cents per transaction, down from 5 cents in 2011. The report contains summary information on the volume and value, interchange fee revenue, issuer costs and fraud losses related to debit-card transactions in 2013.
Despite this decline, banks continue to charge on average 24 cents per transaction, yielding a profit margin as high as 445%, according to the Merchants Payments Coalition (MPC).
This markup, levied by the banks every time a consumer swipes a debit card, costs retailers and consumers billions of dollars every year, MPC said. It has a “ripple effect” that directly impacts the cost of goods and services as well as merchants’ ability to keep their doors open and expand their businesses, the group claimed.
The Federal Reserve, however, has no plans to revise the regulations surrounding the interchange fees as outlined under the Durbin Amendment of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.
“The board does not plan to propose revisions to the Regulation II interchange fee standard or the fraud-prevention adjustment based on these survey data,” it said.
“If the Fed had followed the law passed by Congress, these outrageous fees would be dramatically reduced,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation (NRF) and chairman of the MPC. “Profit margins this high aren’t tolerated in competitive markets. Main Street businesses and their customers are being fleeced on these swipe fees.”
“The [Durbin] amendment was carefully crafted and its purpose was clearly expressed,” Majority Whip, Senator Richard Durbin (D-Ill.), said. “Unfortunately, the board’s final rulemaking failed to sufficiently follow the text and purpose of the law. Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result.”
Durbin’s comments came in a friend-of-the-court brief filed last week in an NRF lawsuit that claims the 21-cent cap set by the Fed in 2011 goes beyond the “reasonable and proportional” level mandated by Congress under the Durbin Amendment provisions of Dodd-Frank.
A U.S. District Court judge agreed with NRF in 2013 that the cap was too high, but the U.S. Circuit Court of Appeals overturned the ruling this spring, citing “ambiguity” in the 2010 law. NRF this summer asked the Supreme Court to hear the case, and is currently awaiting a decision.
In last week’s brief, Durbin denied that the law was ambiguous, and said the Circuit Court “essentially gave the board a blank check” to include costs that Congress specifically said could not be used to boost debit swipe fees.
Under the Durbin Amendment, the Fed was only allowed to consider the costs of authorizing, clearing and settling each transaction. The Fed initially calculated those costs at an average of 4 cents per transaction and proposed a cap of up to 12 cents. Durbin said the 21-cent level was set after the banking industry “expressed outrage with the board’s draft rulemaking and launched an aggressive lobbying campaign to weaken the draft rule.”
“Congress neither instructed nor empowered the board to impose its own policy judgments and engage in a line-drawing exercise between merchants’ desire for low fees and banks’ desire for high fees,” Durbin said. “Congress tasked the board to follow the law Congress enacted, not to circumvent it at the request of the banking industry.”