Supply Chain Examined for Gasoline Costs

An Energy Information Administration study was done a few years ago and remains relevant today with its results. In their weekly report, they highlighted how crude prices work their way through the system in about eight weeks.

Usually, it takes only two weeks for the pump prices to increase and analysts say that for every $10 bbl increase in the price of crude it will usually translate to a 24 cent increase in the per gallon cost of gasoline.

The report showed a 0.5 cents decline in the U.S. retail gas price average for regular grade as of March 21, but at $3.562 gallon, that is little consolation for American drivers.

Likely, the average will again move higher after this brief pit stop due to the fact that wholesale costs are still moving through the supply chain.

In recent weeks, wholesale gasoline costs moved higher across the country, climbing alongside the advance by crude features. Weekly data released on March 23 by the EIA showed a sharp increase in implied demand and big drop in domestic supply levels.

The EIA shows there is increased demand and data shows a year-on-year growth through March 18 at 0.8% higher than that comparable to 2010. The data further shows acceleration in that growth, up 1.2% from a year ago.

However, what really caught the market’s attention was a steep 5.3 million barrel drawdown in U.S. commercial gasoline inventory. The drop is 2.2 percent less than a year ago at this time.

Gasoline stocks have fallen to 21.4 million a barrel or 8.9 percent from a 21-year high registered on Feb. 11th of this year and are now near the five-year average.

Historically, gasoline prices move higher from winter into spring as the market anticipates increased demand as the weather warms so this will be a factor to watch.

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