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Warmer weather is sweeping across most of the U.S., bringing with it the first blooms of spring and, crucially for the energy industry, heightened demand for gasoline. According to reports from Reuters, at least one major American refiner is planning to process more crude oil for the duration of the second quarter of 2017, aiming to take advantage of robust retail activity and falling inventory levels.
Reuters reported that refined petroleum products have posted lower stockpile levels in recent months. In turn, refiners are increasingly optimistic that they will outperform 2016, when a glut of oil and refined products caused margins to bottom out.
Wall Street responded to these hopes and showed renewed interest in buying up stocks of refinery corporations. Valero, the biggest refinery operator in the U.S., saw shares rise 1.3 percent for a period April 25. Earlier that day, the company reported refinery sales were already 40 percent higher than the same time last year. This was taken as a strong early sign for analysts and traders.
"With VLO being the first out of the gate and the bellwether for refining, we believe the stronger-than-expected (refining and marketing) results, strong export volumes and bullish market commentary could start setting the pace for improved investor sentiment towards the sector," investment bank Morgan Stanley said in a client note, according to Reuters.
EIA expects gas sales to jump this summer
The U.S. Energy Information Administration released a forecast for gasoline prices that tended to agree with the current outlook on U.S. refining business in 2017. According to the EIA's report, the national average gasoline price would peak around $2.46 per gallon this summer, only slightly higher than 2016 ($2.23 per gallon) but a far cry from the cumulative average of the last five years. From 2012 to 2016, summer gas prices were as high as $3.15 per gallon nationwide, according to EIA estimates.
Over the course of the entire year, the EIA projected average gas prices to notch marginally higher in 2017, at a price of around $2.39. Based on these forecasts and data from the Bureau of Labor Statistics' Consumer Expenditure Survey, the typical American household can expect to pay about $200 more for gas this year. Drivers may bemoan this price increase, but it's worth noting that 2016 saw the lowest gas prices since 2004.
Gasoline prices in the United States tend to change in tandem with the Brent global oil benchmark price. The Brent crude oil price is expected to average $54 per barrel, or 1.29 cents per gallon this summer, about $8 per barrel lower than last summer. Crude oil prices are higher this year because of the market's forecast that global crude oil balances will begin tightening this year, driven in part by the agreement made in December by OPEC to reduce production. The EIA said it expected Brent crude oil prices to remain below $60 per barrel on a monthly average basis through December 2018, the final month of the forecast period.
Gasoline prices also have a seasonal component, and typically increase after the winter months. During the spring and summer, gasoline demand often increases and gasoline specifications change from winter-grade gasoline to spring- and summer-grade gasoline. Because summer-grade gasoline is more costly to manufacture, wholesale gasoline margins typically increase during summer months.
The EIA report projected motor gasoline consumption for summer 2017 to average 9.5 million barrels per day, just 0.3 percent more than last summer, as an expected 1.4 percent increase in summer highway travel more than offsets a 1.2 percent increase in fleet-wide fuel efficiency. Regional differences in retail gasoline prices can be significant, and EIA forecasts average summer prices to range from a low of $2.21 per gallon on the Gulf Coast to $2.87 per gallon on the West Coast.
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