WALL STREET JOURNAL

 

By NICOLE FRIEDMAN
April 21, 2014 9:02 p.m. ET

 

Price of Gas in U.S. Rises as Refiners Export More to Other Countries

Nation's Gasoline Stockpiles Are at Lowest Point This Time of Year
Since 2011

 

Drivers in the U.S. are facing rising gasoline prices ahead of summervacation
season, just as refiners here are shipping more gas to other
countries.


A new pipeline, built to release a glut of crude oil that was stuck in the
middle of the country, is now feeding oil to refineries on the Gulf Coast that
churn out gasoline and diesel. While these fuels still make their way to the
Southeast and the East Coast, growing amounts are being sold to Mexico,
the Netherlands, Brazil and other countries.

 

The push into these markets has been spurred by the U.S. oil boom. Rising
oil output had been flooding the nation's oil market in recent years, keeping
U.S. crude prices low relative to world prices. Facing tepid fuel demand in
the U.S., refiners have been ramping up exports, creating more global
competition for U.S.-produced fuel.


While the construction of pipelines and other transportation infrastructure
allows other countries to benefit from the oil boom, it also means the market
for motor fuels has become more competitive. The gasoline market now has
to reckon with demand from other countries—and the potential impact on
prices—during a U.S. economic recovery many economists see as fragile.


"Quite frankly, this is not just a U.S.-centric topic anymore," said Nancy
White, a spokeswoman for motor club AAA. "Production is going overseas,
so that impacts the supply here, and that will drive prices up."


Gasoline stockpiles nationwide are at their lowest point for this time of year
since 2011, according to the U.S. Energy Information Administration.
Meantime, the retail price for a gallon of regular gasoline averaged $3.68 on
Monday, up 4.2% from a year ago, according to the EIA. That is the highest
price since March 2013. AAA had the average price on Monday at $3.67.


Gasoline futures climbed 1.1% to $3.0869 a gallon Monday on the New
York Mercantile Exchange and are up 11% for the year. Prices for the
futures, which are contracts to buy or sell at a specified price and time, are a
leading indicator for prices at the pump and don't reflect the impact of taxes
and other components of retail prices.


While seasonal factors often account for rising gasoline prices ahead of
summer, when millions of Americans hit the road for long car trips, the
prospect of more gasoline being shipped overseas plays a prominent role in
the current rally, analysts say.


Total petroleum exports, mostly gasoline and diesel, averaged about 3.6
million barrels a day last week, according to the EIA, up 25% from the same
period last year. The figure includes a small amount of oil exports that are
allowed by the U.S. government, which effectively banned them in 1975.
Research firm ESAI Energy estimates that the U.S. will become a net
gasoline exporter by next year.

 

"Export demand is still growing," said Jan Stuart, head of energy research at
Credit Suisse. And as the U.S. economy improves, "slowly but surely,
vehicle miles traveled has begun to rise again," he said. Mr. Stuart expects
gasoline-futures prices to be 10 cents higher, on average, in the third quarter
compared with the second quarter.


The potentially bad news for consumers is good news for oil bulls, who have
been struggling against the rising tide of U.S. oil output since the start of
2011. Citing low levels of gasoline supplies, some fund managers say pump
prices are unlikely to weaken until after the summer vacation season.


As a group, hedge funds and other money managers held $9.3 billion of
bullish bets on Nymex gasoline prices, the most in a year, according to the
U.S. Commodity Futures Trading Commission.


The crude-oil futures market is also feeling ripple effects of rising fuel
exports. On Jan. 22, TransCanada Corp. opened the southern leg of the
Keystone XL pipeline project, which carries crude oil from Cushing, Okla.,
to Gulf Coast refiners. Since that time, stockpiles at Cushing, one of the
nation's largest crude-oil storage hubs and the physical delivery point for the
Nymex futures contract, have fallen 36%, to their lowest levels since 2009.


That decline in supplies has pushed U.S. crude-oil futures traded on the
Nymex up 6.1% year-to-date, analysts and investors say.

 

Money managers held a near-record bullish bet on Nymex crude futures
worth $34.4 billion last week, according to the CFTC.


To be sure, some experts believe the rally in both crude-oil and gasoline has
hit a peak.


The EIA expects prices at the pump to average $3.57 between April and
September, a penny less expensive than last year, citing lower international
oil prices. AAA forecasts gas prices to average between $3.55 and $3.75 a
gallon this summer, but if crude-oil prices stay as high as they are, prices at
the pump could rise more, Ms. White of AAA said.


Unless the U.S. allows crude-oil exports, domestic prices will stay depressed
compared with international prices, said Daniel Lacalle, senior portfolio
manager at investment firm Ecofin in London, who oversees a £481.1
million ($807.8 million) energy-focused fund.


"The U.S. is a closed system where there is more oversupply of crude oil,"
said Mr. Lacalle, who is wagering that U.S. prices will fall further below the
international benchmark by the end of the year.


Still, some investors are betting that domestic gasoline demand could prove
unexpectedly strong this summer, on top of the rising demand from
overseas.


Drivers that have been cooped up during an unusually frigid winter could be
eager to get behind the wheel, said John McLane, president of commodities
trading firm Mobius Asset Management in Scottsdale, Ariz., which oversees
$11 million.


"The majority of the country...had one of the fiercest winters that we've
experienced in decades," said Mr. McLane, who thinks crude-oil prices
could climb as high as $112 a barrel in the next two months. This summer,
"we're taking that vacation. We're traveling more than once."

 


But for the time being, U.S. gasoline prices will be more dependent on the
global demand outlook, said Jeff Currie, head of commodities research at
Goldman Sachs.


"As long as you can refine that oil, turn it into product and export the
product, you'll connect yourself to the global market," Mr. Currie said.


Write to Nicole Friedman at nicole.friedman@wsj.com
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.