From Barron's Commodities Corner:
As winter approaches, oversupply is about to collide with a drop in driving.
Gasoline is finally catching up to the slump in crude-oil prices.Even as oil tumbled in recent months, owing to a glut of crude, strong consumption kept gasoline prices more buoyant. At the end of August, gasoline futures had climbed 14% since the start of the year, while West Texas Intermediate, the U.S. petroleum benchmark, had slid 7.6%.But Labor Day signaled the start of the school year for many and the end of the busy summer vacation season, putting gasoline demand in the rearview mirror. In addition, many gas stations switched to cheaper winter-grade gas last week, which can cut the price at the pump by 10 cents a gallon. Gasoline futures have fallen 17% this month, more than oil futures. On Friday, gasoline futures on the New York Mercantile Exchange settled down 1.4% at $1.3562 a gallon.All of that means more savings for drivers, who paid the cheapest Labor Day gas prices since 2004. Retail prices averaged $2.30 a gallon on Friday, the lowest for that day since 2004 according to the American Automobile Association. Three states, all in the Southeast, are already seeing average prices below $2 a gallon, and forecasters expect more to follow in coming weeks. The U.S. Energy Information Administration expects retail prices to average $2.03 a gallon in December—and that’s including usually super-expensive Alaska, Hawaii, and California. “Even by Thanksgiving, you’re going to see some eye-popping prices,” predicts Jeff Pelton, a senior petroleum analyst at GasBuddy.com. “There’s just no reason why it shouldn’t keep going down.”U.S. gasoline demand peaked in 2007 and was widely expected to continue dropping, due to increasingly fuel-efficient cars and less driving because of economic or environmental concerns. But the rout in oil prices that began last year has helped stall that decline. U.S. sales of light trucks—a category that includes SUVs, pickups, and vans—outpaced those of cars by a seasonally adjusted 28% in January through August of this year, the largest difference on record, the EIA said in a recent blog post. Trucks tend to be less fuel-efficient than cars, so the trend could raise gasoline consumption for years to come.But even climbing demand is unlikely to outweigh a flood of supply in the near term, especially as the weather turns colder and harsher, and drivers stay off the roads. Refineries around the world ran at high rates all summer to produce gasoline, keeping storage tanks relatively well-stocked despite the robust demand. As demand ebbs in the fall, analysts say, a glut of gasoline could develop, further weighing on prices....MORE
Which brings me to an oddity of yesterday's action: Most market participants focused on the drawdown of crude in storage but not so much on where the oil went....
Why do I have this nagging suspicion that crack spreads are going to pull in?Gasoline Glut To Hit Refiners: Wood Mackenzie (CRAK)