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Get ready to pay more for gasoline; prices could leap to two-year high this spring

 

Patti Domm | @pattidomm – March 31, 2017
21 Hours Ago
CNBC.com

 

Gasoline prices could see a significant springtime jump of 20 to 45 cents per gallon, pushing
retail pump prices to their highest level since June 2015, according to a widely followed gasoline
analyst.


Tom Kloza, global head of energy analysis at Oil Price Information Service, said he sees several
factors combining to push up prices — anticipated higher crude prices, higher demand from U.S.
drivers and a higher level of gasoline exports. According to AAA, the national average for
unleaded gasoline was $2.30 per gallon on Thursday.


"I'm not looking for consumers around the country to pay $3 or more, but I am looking for a
noticeable increase that would put us 25 or 40 cents above the peak of last year, which was about
$2.38," he said. That level was reached in June.


Kloza said macro factors support higher gasoline prices, including high employment, consumer
purchases of SUVs instead of more fuel-efficient cars and strong consumer confidence, which
jumped to a 16-year high this month.


"In looking back, I think we'll see retail prices that will be very similar to what we saw in 2015,
when pump prices topped around $2.80 a gallon," he notes.


"Wherever we get to, it will represent an overreaction and we'll tend to slide lower in the last 100
days of 2017. But one can see where expenses for consumers may be $25 or so per month higher
than they were during similar periods in 2016."


Kloza said global oil supplies appear to be rebalancing and demand for crude could soon outstrip
supply, despite the huge amount of U.S. oil in storage. That should help prices, but so should
demand for gasoline, which usually rises by about 100,000 barrels a day in April, though it fell
last year.


He said there's also a calculation he uses that takes into account the span in futures prices for
RBOB gasoline, which was about $1.26 per gallon in November. RBOB futures Thursday were
at $1.68 per gallon.


"The average, over 30 plus years appreciation between the winter low for gasoline and the spring
high … is 57 percent. … If you take the low, you get real close to $2 on the RBOB [gasoline
futures] contract," said Kloza. Translated to retail prices, "It's in that $2.50 to $2.75 range at the
pump with six states hovering around $3."


Some analysts don't see such robust gasoline prices this year, since U.S. gasoline demand has
been soggy of late, and a gasoline glut in winter fuel has helped keep prices steady. But that
flood of winter fuel should be waning, with a switch over to summer fuel starting April 1.


"There's no doubt that demand is going to pick up. Seasonally, we're out of winter and we're
going to go into summer driving season, and demand is going to go up. The big question on
everyone's mind is are we going to see an increase in demand compared to last year," said
Andrew Lipow, president of Lipow Oil Associates.


U.S. gasoline exports have been rising and were 608,000 barrels a day last week, up from
400,000 barrels a day last year, according to the most recent Energy Information Administration
data. Those exports go to Mexico and other locations in Central and South America.


Lipow expects oil prices to go up, contributing to a move higher in gasoline prices, which he
sees just about 10 to 15 cents higher over the next couple of months. Oil prices could also get a
lift from higher gasoline demand, as refineries use more crude.


"I think there's going to be strength in crude oil prices because over the next couple of weeks,
we're going to continue to hear rhetoric from OPEC members wanting to extend their production
cuts for the balance of 2017, and I think that's going to happen. Otherwise, the market would
continue to be pressured under $50, which is not what they want," Lipow said.


West Texas Intermediate futures rose back above $50 Thursday, jumping 1.5 percent. Brent
futures for May were trading just over $53 per barrel.


There are signs of tightening oil supply globally, said John Kilduff of Again Capital. Looking at
the futures market for Brent crude, the international benchmark, there has been recent price
movement.


"May [futures] pared its discount to June by 60 cents, indicating expectations for tighter physical
market conditions," he said.


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES