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Price of gas rises as refiners send more overseas

US stockpiles are at their lowest point for this time of year since 2011.

By Money Staff Apr 22, 2014 11:56AM

This post comes from Nicole Friedman at partner site The Wall Street Journal.

The Wall Street Journal on MSN MoneyDrivers in the U.S. are facing rising gasoline prices ahead of summer-vacation season, just as refiners here are shipping more gas to other countries.

A new pipeline, built to release a glut of crude oil that was stuck in the middle of the country, is now feeding oil to refineries on the Gulf Coast that churn out gasoline and diesel. While these fuels still make their way to the Southeast and the East Coast, growing amounts are being sold to Mexico, the Netherlands, Brazil and other countries.

The push into these markets has been spurred by the U.S. oil boom. Rising oil output had been flooding the nation's oil market in recent years, keeping U.S. crude prices low relative to world prices. Facing tepid fuel demand in the U.S., refiners have been ramping up exports, creating more global competition for U.S.-produced fuel.

While the construction of pipelines and other transportation infrastructure allows other countries to benefit from the oil boom, it also means the market for motor fuels has become more competitive. The gasoline market now has to reckon with demand from other countries—and the potential impact on prices—during a U.S. economic recovery many economists see as fragile.

"Quite frankly, this is not just a U.S.-centric topic anymore," said Nancy White, a spokeswoman for motor club AAA. "Production is going overseas, so that impacts the supply here, and that will drive prices up."

Gasoline stockpiles nationwide are at their lowest point for this time of year since 2011, according to the U.S. Energy Information Administration. Meantime, the retail price for a gallon of regular gasoline averaged $3.68 on Monday, up 4.2 percent from a year ago, according to the EIA. That is the highest price since March 2013. AAA had the average price on Monday at $3.67.

Gasoline futures climbed 1.1 percent to $3.0869 a gallon Monday on the New York Mercantile Exchange and are up 11 percent for the year. Prices for the futures, which are contracts to buy or sell at a specified price and time, are a leading indicator for prices at the pump and don't reflect the impact of taxes and other components of retail prices.

While seasonal factors often account for rising gasoline prices ahead of summer, when millions of Americans hit the road for long car trips, the prospect of more gasoline being shipped overseas plays a prominent role in the current rally, analysts say.

Total petroleum exports, mostly gasoline and diesel, averaged about 3.6 million barrels a day last week, according to the EIA, up 25 percent from the same period last year. The figure includes a small amount of oil exports that are allowed by the U.S. government, which effectively banned them in 1975.

Research firm ESAI Energy estimates that the U.S. will become a net gasoline exporter by next year.

"Export demand is still growing," said Jan Stuart, head of energy research at Credit Suisse. And as the U.S. economy improves, "slowly but surely, vehicle miles traveled has begun to rise again," he said. Mr. Stuart expects gasoline-futures prices to be 10 cents higher, on average, in the third quarter compared with the second quarter.

Gas pump © ComstockThe potentially bad news for consumers is good news for oil bulls, who have been struggling against the rising tide of U.S. oil output since the start of 2011. Citing low levels of gasoline supplies, some fund managers say pump prices are unlikely to weaken until after the summer vacation season.

As a group, hedge funds and other money managers held $9.3 billion of bullish bets on Nymex gasoline prices, the most in a year, according to the U.S. Commodity Futures Trading Commission.

The crude-oil futures market is also feeling ripple effects of rising fuel exports. On Jan. 22,  TransCanada Corp. opened the southern leg of the Keystone XL pipeline project, which carries crude oil from Cushing, Okla., to Gulf Coast refiners. Since that time, stockpiles at Cushing, one of the nation's largest crude-oil storage hubs and the physical delivery point for the Nymex futures contract, have fallen 36 percent, to their lowest levels since 2009.

That decline in supplies has pushed U.S. crude-oil futures traded on the Nymex up 6.1 percent year-to-date, analysts and investors say.

Money managers held a near-record bullish bet on Nymex crude futures worth $34.4 billion last week, according to the CFTC.

To be sure, some experts believe the rally in both crude-oil and gasoline has hit a peak.

The EIA expects prices at the pump to average $3.57 between April and September, a penny less expensive than last year, citing lower international oil prices. AAA forecasts gas prices to average between $3.55 and $3.75 a gallon this summer, but if crude-oil prices stay as high as they are, prices at the pump could rise more, Ms. White of AAA said.

Unless the U.S. allows crude-oil exports, domestic prices will stay depressed compared with international prices, said Daniel Lacalle, senior portfolio manager at investment firm Ecofin in London, who oversees a £481.1 million ($807.8 million) energy-focused fund.

"The U.S. is a closed system where there is more oversupply of crude oil," said Mr. Lacalle, who is wagering that U.S. prices will fall further below the international benchmark by the end of the year.

Still, some investors are betting that domestic gasoline demand could prove unexpectedly strong this summer, on top of the rising demand from overseas.

Drivers that have been cooped up during an unusually frigid winter could be eager to get behind the wheel, said John McLane, president of commodities trading firm Mobius Asset Management in Scottsdale, Ariz., which oversees $11 million.

"The majority of the country...had one of the fiercest winters that we've experienced in decades," said Mr. McLane, who thinks crude-oil prices could climb as high as $112 a barrel in the next two months. This summer, "we're taking that vacation. We're traveling more than once."

But for the time being, U.S. gasoline prices will be more dependent on the global demand outlook, said Jeff Currie, head of commodities research at Goldman Sachs.

"As long as you can refine that oil, turn it into product and export the product, you'll connect yourself to the global market," Mr. Currie said.

More from The Wall Street Journal

Apr 22, 2014 1:11PM

Let's see if I have this right:  The US is producing more oil and is a lot less dependent upon foreign sources.  Our economy is improving. Yet, our gasoline prices are going up with regularity.  Now we find that the reason our gas prices are going up is because our refineries are selling more and more of our oil and oil products overseas.  Like to China, etc.

Our beef prices are high.  First it was "the dry weather" that done it.  Now it's because we're selling more and more of the beef people in this country produce to China and Japan.

Perhaps we should be keeping OUR products in THIS country if selling them to folks in country's like China is just going to run the prices up on us.  And, of course, I'm all for paying our factories, refineries and farms a decently fair price for the products they produce here.

This One World BS is dragging our people down.

Apr 22, 2014 12:39PM

... because shafting the consumer is more important than ensuring energy independence for the country ...

Apr 22, 2014 12:23PM
follow the money................. the war on the middle class continues.  
Apr 22, 2014 12:46PM
So... we've had a really bad winter. Where is our break at the pump??? Honestly, I can't afford to take a vacation. Have to put oil in the house, gas in the vehicles and food on the table. Give "We The People" a break!!! I think we've earned it!
Apr 22, 2014 12:47PM

I agree with am lumber...follow the money and the war on the middle class continues!!

At the end of the day, it always comes down to the dollar....GREED is the one and only factor that drives these big oil companies...nothing more, nothing less. Add in the stock market speculators and the cost goes through the roof. All this happens for one reason...because they can!! Don't waste your breath trying to contact ANY elected person because #1, you will only get a "robot" form letter back and #2, you have nothing to offer them to have thme waste time on you. The time is coming for a revolt of the american people, I may not see it but sure as god made apples, its a coming.

Apr 22, 2014 1:02PM
why do we still import if we are exporting so much gasoline/oil? GREED???  screw the middle class is the new business mantra.
Apr 22, 2014 1:24PM
Isn't it funny how the two single most important factors (gas and food) are excluded from the government CPI. Hmmm...yeah, there is no inflation.
Apr 22, 2014 12:51PM
An up will go the price of everything else, never to drop again.
Apr 22, 2014 1:11PM
The greedy wall street/ oil company cabal does the same thing every year, and the annual May Greedfest is underway. They know you might want to take a vacation drive this summer so they manipulate gas prices higher. Nationalize the oil companies now and run them like the public utility they should be.
Apr 22, 2014 1:03PM

AIN'T GOONA HAPPEN!!!! The American public couldn't organize a lemon aid stand let alone a "radical confrontation". LMAO.


You don't get out much if you can't see the change in the sheepies mentality.......LMFAO

Apr 22, 2014 1:08PM
So hows the 6 years of Obama working out so far????? They'll blame it on the Summer Love Blend.
Apr 22, 2014 1:06PM
Well it's obvious that obama is a secret oilman. After all high prices were blamed on Bush and not blaming barry would be hypocritical, right???
Apr 22, 2014 12:32PM
Even democratic politicians want to build the Keystone Pipeline, yet the administration keeps delaying!  That would help drive the price down over time.  Its construction has been approved by many agencies, yet the decision has been pushed back until after November elections.  This administration is  the LEAST transparent and most corrupt since Nixon.

"More and more peoples eyes are opening to the rampant increase of greed in our society..........Could cause a radical confrontation."


AIN'T HAPPENING!!!!  The American public couldn't organize a lemonaid stand let alone a "radical confrontation".  LMAO.

Apr 22, 2014 12:53PM
Cool, Obama wanted our trade deficit to decline to help government revenue and boost GDP. Wonder how he is going to spin this as being good for Joe average?
Apr 22, 2014 12:32PM
Not a problem, since I run on a monthly budget. The more I have to spend for gasoline, the less I have left to spend for other goods and services. I don't really care who gets hosed, but rest assured, it won't be me.
Apr 22, 2014 12:46PM
yet another reason to get rid of this president and anyone who stands with his crooked ways and lies. we need someone who is for the usa first   not handing our money to every other country who asks.  time to drill, produce and use all of the resources we have. get rid of the EPA and replace it with something that works for the people
Apr 22, 2014 1:47PM
Production goes up?  Prices go up!  

Production goes down?  Prices go up!  

Demand goes up?  Prices go up!  

Demand goes down?  Production goes down, prices go up!  

A camel farted in Saudi Arabia?  Prices go up!  

Anyone else notice the pattern???  This is BS.
Apr 22, 2014 12:43PM
Blame it on liberal environmentalism (Obama Administration) for not allowing more refineries to be built!
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