WEX Monthly PPG Average Report for January 2015
|Los Angeles, CA||$2.60||$3.02|
|New Orleans, LA||$1.88||$2.77|
|New York, NY||$2.66||$3.73|
|San Francisco, CA||$2.77||$3.45|
|St. Louis, MO||$1.82||$2.60|
|National Average (US)||$2.11||$2.95
Retail Gasoline Prices Likely To Spike by 50 Cents
Experts have come to the conclusion that Groundhog Day was the closest “holiday” that might represent the bottom of the gasoline price cycle. It is almost altogether predictable that gas prices will rise between Groundhog Day and Cinco de Mayo.
It looks as though this cycle of behavior saw the winter bottom when gasoline briefly touched $1.23 per gallon on January 13. This is a relatively late winter bottom, but not the latest by far. Since January 13, gasoline prices have recovered to $1.55 per gallon for the prompt contract, and April futures are now at $1.76 per gallon. If one assumes that this rally won’t lose steam in the next 18 business days, the April contract reflects a target that is 53 cents per gallon above the bottom.
Analysts say the reasons for these typical increases include:
1. The market overreacting to the downside
2. Refinery maintenances as well as voluntary run cuts tending to take place in the first quarter
3. The trading community well aware of the seasonal uptrend and jumps on futures’ contracts when it senses opportunity
4. The switch to spring/summer grade gasoline requires flushing out winter gas and replacing it on the fly with the new spec.
In previous years, the market (or the media) has mentioned Russia, Nigeria, and other factors to justify the price appreciation. This year includes a new twist – a strike by the union that represents refinery workers. Despite tough times in December and January, refiners have had a good prosperity run of five years or so and most market-watchers think it will be settled quickly.
An average seasonal rally would take gasoline futures up by 55% from the bottom, which works out to a 67 cents per gallon rally from the $1.23 per gallon low. That would point to a top around $1.90 per gallon for wholesale gasoline futures. Prices then typically correct or dump 15-20% lower in the second quarter.
In the retail space, the increases so far project to a nationwide average price of perhaps $2.25-$2.35 per gallon, with the usual higher numbers in California. If we see a normal wholesale rally, we might be looking at retail prices in the $2.50-$2.75 per gallon range by April, with higher numbers in the typical hot spots (California, Chicago, Connecticut, New York, etc.).