Gasoline futures tumbled 4.2% Wednesday as increasing activity by refineries has investors betting on a jump in fuel supplies.
U.S. oil refineries last week boosted operations to the highest levels since early January, according to government data released Wednesday. Operations increased by 0.6 percentage point to 86.3% of capacity, a sharper rise than analysts and traders were expecting, as many refineries got back to churning out gasoline and other fuels after shutting down for maintenance and repairs earlier this year.
While gasoline stockpiles posted a modest decline last week, according to data from the U.S. Energy Information Administration, analysts and traders say that supplies are set to increase over the coming weeks as gasoline wholesalers prepare for higher fuel usage during the summer months. And with demand from drivers still muted, forecasters are expecting stockpiles to climb.
Already, an improving supply outlook is helping to lower prices at the pump. The average U.S. price of regular retail gasoline stood at $3.640 a gallon Wednesday, according to AAA's Daily Fuel Gauge Report, down nearly 11 cents from a month ago.
"Once these refineries start to come back online, the perception is that we'll be able to increase the amount of gasoline heading into the market," said Stephen Schork, head of oil-trading advisory Schork Group. He added that gasoline's price drop is also weighing on oil futures, which fell 2.8% Wednesday.
Front-month May reformulated gasoline blendstock, or RBOB, settled 12.68 cents lower Wednesday at $2.9140 a gallon, the first time prices have fallen under $3 since February.
Light, sweet crude for May delivery also ended lower, declining $2.74, or 2.8%, to $94.45 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange fell 3.2% to $107.11 a gallon, the lowest settlement this year.
Oil prices were pulled down by gasoline's decline, as well as data that showed rising oil supplies. The EIA said domestic oil stockpiles rose to 388.6 million barrels last week, the highest level since 1990.
Crude-oil prices are a key factor in what consumers pay for gasoline, and despite a slight rise from earlier this year, U.S. futures remain below highs near $98 a barrel hit in January.
On Wednesday, analysts at Barclays slashed their oil-price forecasts for 2013, citing a lower threat of Middle East conflict and improving production in the North Sea, U.S. and other areas.
The bank now expects Nymex-traded West Texas Intermediate crude oil will average $95 a barrel this year, down from an earlier forecast of $108 a barrel. Europe's Brent crude is now seen at an average of $112 a barrel in 2013, down from $125 a barrel in Barclays's earlier forecast.
Lower oil prices amid rising U.S. production should help keep a lid on gasoline as well, said Andy Lipow, president of energy-consulting firm Lipow Oil Associates, in Houston.
"Given the fact that gasoline demand continues to decline...and the fact that we're processing more domestic crude-oil, it's going to make for a better a supply situation," Mr. Lipow said.
May heating oil settled 2.8% lower at $3.0020 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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