Exclusive Fuels Analysis: Beyond the Benchmarks

Crude plunge will usher in next phase of autumn gasoline price relief

Published in CSP Daily News

By  Tom Kloza, Chief oil analyst

Tom Kloza of OPIS/GasBuddy

WALL, N.J. -- The high-profile WTI crude oil futures contract fell below $100 per barrel this week for the first time since July 1, but that drop tells only part of the story. Some North American crude oil blends are now flirting with a $60-per-barrel price, setting up some very sharp fuel downdrafts across the Rockies, Great Plains and Great Lakes states.

For example, heavy, sour, Canadian crude from the Tar Sands was available to U.S. refiners for about $64 per barrel in Alberta on Friday. Some of the more acidic blends were perhaps $5 per barrel cheaper. Any refiners equipped to handle these grades had feedstock costs of under $70 in interior U.S. markets.  It’s no wonder then that spot gasoline prices briefly dipped to about $2.35 per gallon across the nation’s midsection. When converted into dollars per barrel, that yields a gasoline value of under $100.

U.S. refineries weren’t the only regional beneficiaries of cheap Canadian crude. Whether one was looking at North Dakota Bakken crude or the “primo” light Louisiana sweet blends, the domestic numbers were at least $8 per barrel below global equivalent grades. Crude in North Dakota essentially sold for about $23 per barrel beneath the value of similar grades in the Middle East.

GasBuddy now expects that U.S. motor-fuel pump numbers will rendezvous with price levels last seen just before the Arab Spring in early 2011. The U.S. average hasn’t slipped below $3.20 per gallon since Feb. 23, 2011, and it is entirely possible that this autumn’s downtrend may push the nationwide number close to $3 gal.

But that number is hardly magical. Approximately half of U.S. states now have at least some competitive price offerings below $3 per gallon, and there has been no “lift” in consumer spending. One can blame the U.S. government shutdown, the debt-ceiling debacle or the apprehension surrounding the Affordable Care Act, but more simply, November gasoline demand typically falls by about 7.4 million gallons per day from October. Based on metrics analyzed in the last three years, one might look for November gas consumption to be off 21-million gallons per day from August levels.

Meanwhile, refineries that were idled for autumn maintenance are set to be restarted by Veteran’s Day. Those restarts may well stabilize crude oil markets, but they may also bring some of the sloppiest gasoline markets since the winter of 2010-2011.