Gasoline tumbles to near lowest since 2011
NEW YORK -- Benchmark New York gasoline futures tumbled on Wednesday to near their lowest since 2011, offering the prospect of $3 a gallon gasoline to U.S. motorists as refiners churn out a growing surplus of the fuel.
U.S. oil prices have tumbled in recent days as seasonal autumn maintenance at refineries curbs demand for crude, stockpiles of which are now rising quickly.
Reduced output of refined fuels like gasoline would normally help support product prices, but stockpiles are unusually high for this time of year and traders are betting that inventories will rise quickly as maintenance ends.
U.S. Reformulated Blendstock for Oxygenate Blending contracts on the New York Mercantile Exchange fell 2.5 percent or 6.44 cents to settle at $2.5523 a gallon, the lowest closing price since June 21, 2012. Before that, prices hadn't been so low since December 2011.
Nationwide, gasoline inventories are 8 percent higher than they were a year ago. Along the East Coast, where the New York contract is settled, mid-October stockpiles stand at more than 57 million barrels for the first time since the early 1990s, according to Energy Information Administration data.
The region, known as PADD 1, was in danger of growing critically short of gasoline and other fuels a few years ago following the closure of several major refineries, but the advent of cheaper shale crude from places like North Dakota's Bakken have revived their fortunes, improving supplies.
The drop in gasoline futures has helped bring pump prices down across the nation to an average of just under $3.40 a gallon, about 25 cents cheaper than they were a year go, according to motorist group AAA.
Some traders said the rapid unwinding of bullish trades may have contributed to the turnaround in prices, which two months earlier had hovered near year highs above $3 a gallon.
"Part of this seems to be a bit of a sector rotation. Funds are pulling out," said Richard Ilczyszyn, chief market strategist and founder of iitrader.com LLC.
"In my view, oil should have dropped last month, but producers and commercials hedged products coming into November contract because of Syria, so a lot of guys were stuck and locked in at that higher rate."
The build-up of gasoline supplies is also being caused by a shift in global demand toward distillate fuels like diesel, which are in high demand in Latin America and Europe. U.S. refiners, flush with cheap domestic crude, have been running full-throttle this year to export distillates, producing an excess of gasoline that is harder to sell abroad.
In July, the last month for which complete data is available, U.S. exports of distillate fuels surged by a third versus 2012 to the highest on record, according to EIA data. Gasoline exports were down 2 percent versus the year before.