Spike in US gasoline price despite falling oil pri

Spike in US gasoline price despite falling oil prices 

by Commerzbank Commodity Research


  • Specuative net long positions in Brent fell to 10-week low
  • Scarcity in ethanol credits leads to massive increase in US gasoline price
  • Strong Chinese car sales support platinum and palladium
  • Chinese aluminium production at record high in January, copper production noticeably down in contrast
  • Cotton price benefits from prospect for lower supply and rising demand

Energy: Brent continued on its downward trajectory yesterday and this morning is trading at below $110 per barrel, primarily as a result of the exit of financial investors. According to the figures published yesterday by the ICE, speculative net long positions declined by 24 thousand to 125,418 contracts in the week to 5 March, putting them at their lowest level for ten weeks. Today sees the US Energy Information Administration (EIA) and OPEC publishing their latest forecasts and the API releasing its inventory report. 
While oil prices have been on the retreat for some weeks now, the price of US gasoline has surged by as much as 12% since 28 February. As a result, the price differential between US gasoline and Brent widened to a six-year high of $27 per barrel for a time yesterday. The US gasoline price rise is attributable to a massive increase in the cost of “Renewable Identification Numbers” (RINs), which are credited for every gallon of biofuel admixture. Under the terms of the US government’s blending mandate, US fuel producers are obliged this year to add 13.8 billion gallons of biofuels. To achieve this quantity, the ethanol blend would need to exceed the so-called blend wall of 10% in view of the falling demand for US gasoline. Because many older vehicles cannot take a higher ethanol content, gasoline producers are not willing to do this. Producers have to purchase the lacking ethanol credits on the market, which is driving up RIN prices. That said, there is little willingness to relinquish RINs, as they can be carried out into next year, when the blending mandate is expected to be further increased. 

Precious metals: The gold price is trading virtually unchanged at a good $1,580 per troy ounce, kept in check by ongoing ETF outflows which continued for the 16th consecutive day of trading yesterday. One reason for the weak Chinese gold imports in January (see Commodities Daily from 11.03.) could be higher local gold production, which according to the China Gold Association soared by 25% year-on-year to 30.1 tons in January. 
Platinum, and above all palladium, were among the best-performing commodities in recent weeks and were largely able to buck the downward trend on the commodities markets. At a good $770 per troy ounce, palladium is even trading at close to its highest level for 1½ years, while platinum is attempting to take the $1,600 per troy ounce hurdle again. Both of these precious metals are finding support from robust car sales. Because of the New Year celebrations, car sales in China dropped by 8.3% year-on-year to 1.11 million units in February, according to figures from the China Association of Automobile Manufacturers. In January and February together, however, car sales totalled 2.84 million units, which is 19.5% up on the previous year’s level. The Chinese car market has thus recorded its best start to a year since 2010. Robust vehicle sales had previously already been reported in the US. If this trend were to continue, platinum and palladium should continue to find good support during the course of the year. 

Base metals: The National Bureau of Statistics in China published metal production figures for January and February this morning. They show that Chinese aluminium production climbed to a record high of 1.78 million tons in January – at 1.73 million tons, it was only marginally lower in February. According to estimates of Chinese data provider SMM, the commissioning of new capacities more than offset the cuts in production. According to SMM, production capacities of 451 thousand tons have been shut down in China recently. The low aluminium prices mean that a further 500 thousand tons may also be temporarily shut down. This is urgently needed if the high surpluses are to be reduced to even a rudimentary extent. By contrast, copper production in the past two months has dropped noticeably from its record high in December. Significant reductions have also been observed in zinc and lead production. That said, it is doubtful whether this will actually result in increased imports given the high stock levels. Yang Maijun, the chairman of the Shanghai Futures Exchange (SHFE), has spoken out in favour, among other things, of allowing foreign investors to participate in commodities futures trading in China more quickly than planned. This could further increase the importance of the SHFE in the metals trading market. The SHFE is facing growing competition from the Hong Kong Stock Exchange after the latter purchased the LME last year and plans to expand the LME’s activities into Asia. 

Agriculturals: The cotton price has profited in recent weeks from the prospect of lower global supply coupled with growing demand next season. Even if such leading observers as the US Department of Agriculture and the International Cotton Advisory Committee still cannot agree on whether we are likely to see a supply surplus once again, the market is nonetheless readying itself for a lower availability of cotton. If prices were to continue to rise, perhaps remaining firmly above the 90 US cents mark in the near future, the cards could be reshuffled once more. In this case, it is becoming increasingly likely that growing plans will be adjusted in favour of cotton. Given the high global stocks, however, we remain sceptical about whether this situation will actually materialize. What is more, many farmers will no doubt have already bought inputs in line with their previous growing plans, prepared their soil ready for the planned crop and taken out crop insurance, so their flexibility is already limited. This is also evident in the current estimates released by the USDA and the research institute FAPRI, which envisage record crops in the US in 2013, including for soybeans – this will only be possible given sufficient acreage.