The latest data from the U.S. Energy Information Administration (EIA) showed that the average cost for Regular gasoline in America fell by four cents to $2.25 per gallon over the past week. Regionally, the cheapest gas in the country can be found in South Carolina, where a gallon of Regular costs just $1.90 on average. Residents of California again have to pay the most in the U.S. for Regular at $2.87 per gallon, with San Francisco also being the city with the nation’s highest average price ($3.01 per gallon). Consumers are still paying about 30 percent more at the pump than they did in February when the average price plunged to a multi-year low of just $1.72 per gallon. This latest decrease, though, is the fourth week-over-week decline in a row and the lowest reading in two months. Moreover, the average price for a gallon of Regular has fallen by roughly 15 cents (6 percent) in just the last four weeks, not too surprising since the price of oil has declined during this same period.
Indeed, after surging from being down nearly 30 percent year-to-date in February to up almost 40 percent earlier last month, the sharp rebound in West Texas Intermediate (WTI) crude oil appears to have stalled somewhat around the $50 per barrel level. The initial push higher was largely fueled by short-covering, i.e. weak hands forced to exit their bearish positions as prices rose rapidly. After that buying catalyst disappeared, profit-taking and hedge fund repositioning have been the main drivers of recent price action. Moreover, hedge funds have been cutting their bullish bets on oil for more than a month, and this group’s net long position in crude futures and options has been slashed by almost a quarter (633 million barrels to 485 million barrels) in just the last four weeks. At the same time, hedge funds’ short positions have nearly doubled as oil production from the Middle East has climbed to a record.
However, non-OPEC crude oil supply is arguably low and other supply disruption risks remain, all of which could put upward pressure on oil prices down the road. John Kemp, an energy market analyst at Reuters, added that “The underlying supply-demand balance has tightened significantly since the start of 2016 as a result of continued consumption growth and the impact of supply disruptions and investment cutbacks. … Provided the U.S. and global economies avoid a recession, the rebalancing process is set to continue, which should limit the near-term downside for oil prices and point to further increases between 2017 and 2019.” Although such a bullish scenario for oil over the medium-term could dampen consumer spending, it would still be good news for oil and gas producing states in America since their local economies have been hurt the most by cheaper energy prices.
Sources: U.S. EIA, DShort, GasBuddy, Bloomberg, Twitter, Reuters, CME, ICE, CFTC
Post author: Charles Couch