Since mid January gasoline prices have rebounded from the low price of $1.50 on the futures market. There have been various factors disrupting the falling prices in spite of historically high inventory levels. In fact, gasoline prices have gained more than 40 cents per gallon in the last 45 days. Some factors pushing up prices have been:
- Refinery accidents forcing additional plants to slow down gasoline production. A lot of people are speculating that these accidents occur every time gasoline prices drop below $3 per gallon in California and closer to $2 per gallon across the nation as an excuse to charge higher prices.
- The end of the winter schedule for refineries. They close for maintenance and to reformulate the gasoline in preparation for the hotter summer months ahead. Reformulation usually adds an extra 20 cents per gallon for most states. California is an exception as they have an extremely stringent pollution policy which costs about 40 cents more per gallon.
- The largest United Steel Workers Union’ strike in 30 years. Workers are striking at various oil refineries across the nation including Motiva Enterprises which is the nation’s largest oil refinery in Texas that carries a crude capacity of 600,000 barrels a day. These refineries account for 20% of the national production. The negotiations are being held up over whether to replace contractors hired for specialized jobs with union members.
- The cold weather freezing major water transportation corridors on our nation’s rivers and lakes. Many of these passageways are frozen solid. Refineries depend on lubrication oils to operate their machines. 90% of the Great Lakes are frozen over and are blocking most traffic and supplies needed by these refineries to continue processing oil into gasoline.
- Terrorist groups like ISIS who make it their mantra to surprise and shock others with their destructive and frightening acts of violence.
- Older news resurfacing such as the threat of Iran developing nuclear bombs using long range missiles capable of targeting the US and closer enemies.
I question which (if any of these) catalysts will send gasoline prices back up? The month of March may just possibly be one of the more volatile months for gasoline and oil prices this year. Both commodities have spent the last several weeks consolidating and waiting for fresh news to either continue the upwards trend or to reverse the trend downwards. Many industry experts are reporting record levels of gasoline supplies and they speculate that prices will level off closer to $2.50 per gallon nationwide. California is an exception as their stricter guidelines for emission reductions and the recent refinery explosions have driven their prices back up to $3.50+ per gallon. When the reformulated blends hit the market this month we might expect an additional 10 – 20 cent increase per gallon from the current prices.
Technically, gasoline is poised for a spike in price. The chart formation shows us how gasoline prices have been consolidating with buy orders on the lower line and sell orders on the top line keeping the price within a defined range. Traders have been waiting for fresh news to determine the next direction of gasoline. Either prices will increase and continue the previous trend or we will see a reversal in prices. If the technical formation holds then we might anticipate a spike in prices accommodated with high volume. The million dollar question is what will move prices out of this recently developed range? The Baker Hughes oil rig count is due out later today, perhaps we may pay more for gasoline over the weekend.