AAA Fuel Gauge Report Overview
By Chris Plaushin
Director, Federal Relations
Monday, July 26, 2010
Oil prices opened at $78.98 a barrel and managed to rise as high as $79.35 on the NYMEX, before closing at $78.90, a loss of 8-cents.
Prices rose last week, reaching as high as $79.60 on Thursday, due to several factors. The dollar suffered a substantial hit on Thursday declining by about one percent, a number that is considered a large move in the equity markets. This prompted increased crude buying as did the emergence of Tropical Storm Bonnie, the second named storm of the Atlantic hurricane season. As Bonnie moved towards the Gulf, some traders were anticipating the possibility of a disruption in refining operations and decided to do some “just-in-case” buying in the event of a subsequent increase in oil prices. Ultimately, Bonnie fizzled on Saturday without any serious impact on Gulf operations.
Led by news from the U.S. Commerce Department that sales of single family homes increased 24 percent in June, stocks rose today and crude prices stayed in a higher range, as has been the pattern in recent history. While this is a hopeful sign for the economy, it must be viewed in context along with the fact that foreclosures are still increasing the number of unsold existing homes. In addition, the unemployment rate continues to hover around 10 percent which has kept homebuyers tentative.
Other market fundamentals are also just as likely to keep prices in the $70-$80 per barrel range. Crude inventories are well ahead of their totals from last year and refiners continue to operate at about 90% utilization. Late last week, the Federal Highway Administration released data showing that vehicle miles traveled in the U.S. had posted only a 0.1 percent increase compared to May of last year. This is a significant indicator of overall demand weakness since May is traditionally the beginning of the summer driving season. One reason for this could be the influence of prices at the retail level. Prices have generally averaged about 25-cents more in 2010 than they did one year ago, when the national average was around $2.50.
High crude inventories, weak demand numbers, and little evidence to suggest a robust long-term economic recovery are all contributing to the relative stability of prices. With these conditions in place, the traditional increases we have witnessed during previous summer driving seasons appear unlikely.
This is not to say events could change the current level of stability. Colombia has made recent charges that Venezuela is harboring Colombian rebels and has threatened a military response. Venezuelan President Hugo Chavez has said he will cut oil supplies to the U.S. if such an attack occurs. Venezuela remains one of the largest U.S. oil suppliers and this is a situation that bears watching.
The national retail average for a gallon of self-serve regular gasoline
was $2.74 cents, down a penny from this time last month.
The above information is intended to provide perspective on fuel prices
to AAA club spokespersons in speaking to the news media or in preparing
news releases. If you have questions about any information contained in
this document, do not hesitate to contact Troy Green at 202-942-2082.
For information on automotive fuel issues, including AAA's recommendations regarding fuel conservation, click here.