U.S. retail gasoline average prices are at the lowest since 2009 heading into Memorial Day weekend, according to the Energy Information Administration on Friday.
Drivers on the Gulf Coast will enjoy the lowest retail gasoline average prices, compared with the rest of the country.
On May 18, the U.S. average retail price for gasoline was $2.74/gal, or $0.92/gal lower than at the same time last year.
This is the lowest average price heading into the Memorial Day weekend -- the traditional start of the summer driving season -- since 2009.
Lower gasoline prices reflect lower crude oil prices, with the spot price of North Sea Brent crude oil at more than $45/bbl lower than the same time last year, despite having increased more than $10/bbl since the beginning of February.
Average retail prices for all regions of the country are below the level at the same time last year, even in the West Coast region, where supply disruptions pushed gasoline prices to $3.51/gal on May 18, $0.77/gal higher than the U.S. average.
Average retail gasoline prices are lowest on the Gulf Coast (PADD 3), at $2.47/gal on May 18. Gulf Coast gasoline prices are often lower than the U.S average, as the region is home to half of the U.S. refining capacity but a smaller share of gasoline demand.
In the May Short-Term Energy Outlook (STEO), EIA projects the U.S. monthly gasoline price to average $2.68/gal in May, and then decline as refineries in California resolve outages and refineries in the rest of the country increase production of gasoline.
EIA projects regular gasoline retail prices to average $2.51/gal during the third quarter of 2015.
Because of the Memorial Day holiday on Monday, EIA's next weekly survey of retail gasoline and diesel fuel prices will be published on May 26, one day later than normal, but they will still reflect Monday morning prices.
About a year after buying Hess Corp.'s East Coast bunkering business, Aegean Marine Petroleum Network is suing Hess, in New York Supreme Court in Manhattan, claiming misrepresentation of marine fuel sales and margins for that business.
Aegean Marine is seeking $28 million in compensatory damages, claiming breach of contract, almost the same price of $30 million that it paid Hess for its East Coast bunkering business, according to court documents.
In addition to the $30 million purchase price, Aegean paid an additional $110 million for oil inventory. The deal was completed on Dec. 19, 2013, and the lawsuit filed against Hess was on Dec. 18, 2014.
The litigation process remains ongoing.
That bunker business transaction, which includes bunkering operations that averaged 1.8 million metric tons in annual sales over the past three years, is valued at $30 million plus the value of the purchased inventory and also includes approximately 250,000 cubic meters of leased tank storage, Aegean said in 2013.
This acquisition marked Aegean's entry into supplying customers in the U.S. and enabled Aegean to meaningfully expand its global full-service marine fuel platform and increased its exposure to U.S. clients worldwide, including leading cruise lines.
Aegean had expected to utilize these East Coast bunkering operations and associated assets to supply the heavily trafficked ports of New York, Philadelphia, Baltimore, Norfolk and Charleston.
In the court documents, Aegean said that it discovered the financial information on the bunkering business provided by Hess did not in fact accurately represent the sales and margins, and the information contained material misrepresentations and material omissions that resulted in an inflated value of the bunkering business.
This in turn led to an inflated purchase price paid for that business to Hess by Aegean Bunkering, Aegean claims.
Aegean claims that Hess' financial information overstated its sales by including income related to Hess' Port Reading bunker business (about $2.1 million) despite Hess excluding that business from the sale to Aegean.
The "misleading" inclusion of the Port Reading financials in the sales information overstated the average annual income generated by the bunker oil business by about $700,000, Aegean claims.
Hess also excluded costs related to "Excess Logistics" and "Other/Timing Impacts," Aegean claims. The average annual amount of these costs was about $39.6 million. About one-third of these costs should have been allocated to the bunker oil business, which would have resulted in about $13.2 million in additional annual costs compared with what was represented, Aegean claims.
Hess also excluded tankage costs associated with its marine gas oil business. Hess did so because it ran a separate distillate business.
Nevertheless, Hess knew and should have known that Aegean would have to incur such costs upon its acquisition of the bunker oil business, Aegean claims. The marine gas oil tankage cost is about $952,000 per year.
Besides the $28 million claim against Hess, Aegean is requesting that Hess pay attorney's fees and costs.
Meanwhile, Hess is now predominantly an upstream company after divesting most of its downstream assets.
While the general oil market consensus may point to diesel continuing to drive the global refining margin, Barclays expects the gasoline crack to average higher than diesel over the next five years, according to Barclays Capital.
Gasoline-centric U.S. refineries are expected to benefit from this bullish gasoline outlook, the bank said.
"We believe the market view has been too OECD countries-centric and also may have been confused by the steep cyclical downturn in the U.S. gasoline market from 2007 to 2012," the bank said.
Between 2007 and 2012, U.S. gasoline demand plunged 6.5% to 8.7 million b/d from 9.3 million b/d.
Since the U.S. accounted for 42% of the global gasoline market, the worldwide gasoline demand growth rate slowed to 1.0% per annum (p.a.), or 0.2 million b/d a year during this period despite non-OECD gasoline consumption continuing to rise at a robust pace of 5.6% p.a.
In comparison, because U.S. distillate consumption accounted for only 19% of the global market, impact from the U.S. was far less noticeable and worldwide distillate demand managed an average growth rate of 1.2%, or 0.4 million b/d a year.
Since 2013, the U.S. gasoline market has staged a solid cyclical recovery, which Barclays believes will continue over the next couple of years while the former high flying economies such as China, India, Brazil and Russia have slowed down significantly.
Interestingly, despite their slower economies, the non-OECD gasoline consumption growth rate has held up well, particularly compared to the gasoil demand.
Between 2012 and 2014, non-OECD gasoline rose 3.5% p.a. (versus 5.6% between 2007 and 2012) while distillate growth dropped to 1.2% compared to 4.1% in the previous period.
As a result, the global gasoline demand growth rate has been running faster at 1.7% p.a. compared to distillate at 1.2% since 2012.
The bank expects this trend will continue over the next several years.
Equally important, the new refining capacity additions will be predominantly concentrated in distillate production.
Barclays estimates gasoline yield will be only about 20%-25% compared to 50%-60% distillate yield for the new refineries coming onstream over the next several years.
In other words, Barclays estimates the global distillate production capacity will increase by more than twice the pace of gasoline capacity while the gasoline demand (in actual b/d) may grow at a similar pace.
As a result, the bank believes the global gasoline crack should average higher than diesel over the next several years.
Because U.S. refineries are generally gasoline focused, this shift between gasoline and diesel pricing outlook should further enhance U.S. refiners' global competitive advantage.
Savvy fuel marketers in Arizona were taking advantage of a wholesale gasoline price arbitrage at locations between Phoenix and El Paso, Texas, leveraging manpower and truck availability to work a profitable cash spread tied to a tighter supply chain, one U.S. West Coast distributor told OPIS.
Arizona, which receives pipeline supplies west from the Los Angeles market and east out of Texas, has felt the squeeze from a series of regional refinery issues, particularly those in California where limited incremental barrels have contributed to underpinning stronger prices.
To underscore market tightness, gasoline rack prices in Tucson and Phoenix have been inverted since early April, where unbranded averages are higher than branded, due to the supply squeeze and strong spot prices.
This morning, the OPIS unbranded low at the rack in Phoenix was $2.25/gal, OPIS data reveals. That's 5cts/gal more expensive than wholesale gasoline in Tucson and 17.5cts/gal higher than El Paso, Texas, terminal gasoline this morning.
Fuel marketers with available drivers and the extra vehicles were taking advantage of that pricing arbitrage, loading up gasoline in El Paso for Phoenix delivery; however, those capable of working that price spread were few and far between, the USWC distributor said.
"There are a few small truck stop operations and distributors in Willcox, Ariz., with a few extra trucks that can make a three-hour run to El Paso, but the limiting factor is product availability," the distributor said.
Also, professional truck drivers working that stretch of highway were limited by federal hour-of-service (HOS) rules, which restricts the work day to 11 hours, with a mandatory 30-minute break after eight hours. A driver can easily log six hours loading in El Paso and dropping product in Phoenix, cutting time for the return short before violating HOS rules.
Drivers can avoid HOS violations by "flipping seats" in Tucson, trading duty with another driver to complete the route, but that type of extra manpower can be scarce, the distributor said. Another option would be to pull off road and sleep, but transportation fuel rigs with cab bunks are not common due to the extra weight.
"Distributors don't run trucks with sleepers. It' puts them overweight. They want to hold more product," the distributor said.
Average petroleum tank trucks without a sleeper carry about 9,000 gallons of fuel while a heavier truck with a sleeper can hold about 7,500 gallons of fuel.
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“As a new buyer, the information provided in this conference provided me with the tools to successfully negotiate with suppliers.”
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“Excellent job. I will definitely improve my company’s bottom line.”