Gasoline Decline Blunting Romney Weapon: Energy Markets

The longest losing streak for gasoline futures since trading began on the New York Mercantile Exchange in 1986 means that prices at the pump will continue dropping through the Nov. 6 presidential election, AAA says.

The 21 percent decline this month on the Nymex has translated into 14 straight days of declines for regular gasoline, according to AAA, the national largest motoring organization. For consumers, prices dropped 5.7 percent since Oct. 7 to an average $3.599 a gallon yesterday. They may fall to between $3.40 and $3.50 by Election Day, Michael Green, a Washington-based spokesman for AAA, said yesterday in an e-mail.

Prices fell as refineries returned from maintenance and demand slipped, boosting inventories to a seven-week high, according to the U.S. Energy Department. The decline blunts one weapon of Republican presidential candidate Mitt Romney, who has blamed the Obama administration for almost doubling fuel prices since 2009.

“Refinery problems have ended, crude is down dramatically,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said yesterday by phone. “If you’re voting your wallet, the break in gasoline prices may reduce anger at the incumbent.”

Futures slid for a 10th consecutive session on the Nymex yesterday and were 3.9 cents higher today at $2.642 a gallon as of 1:08 p.m. New York time. The futures price has tumbled 11 percent since Oct. 10, when the record slump began. Gasoline, which gained the most of any of the 24 commodities in Standard & Poor’s GSCI index during the first quarter, is the second-worst performer since then after cotton.

Oil Production

Gasoline is sinking as domestic oil production rose to a 17-year high and helped push crude oil costs down to a three- month low. Crude futures dropped 94 cents to $85.73 yesterday, down 22 percent from the 2012 high of $109.77 in February.

Hedge funds cut bullish bets, or wagers prices would rise, on gasoline for a second week in the seven days ended Oct. 16, the Commodity Futures Trading Commission said in its Commitments of Traders report on Oct. 19. Net-long positions fell to 83,923 contracts from the highest level since April.

Romney, the former governor of Massachusetts, has been using gasoline as a campaign issue as the price climbed toward $4 a gallon.

His energy plan calls for states to oversee the development and production of energy on federal lands. In the second presidential debate on Oct. 16, Romney said he will make North America energy independent by “more drilling, more permits and licenses.”

Higher Mileage

During the debate in Hempstead, New York, Obama said he plans to bring down gasoline prices through greater efficiency. The administration has doubled the mandate for car mileage to an average of 54.5 miles per gallon for the 2025 model year.

Romney, who was ahead of Obama 47.8 percent to 47.2 percent yesterday in the aggregate of national polls compiled by RealClearPolitics.com, said that if Obama’s plan were working, prices would be lower.

The price of gasoline in Nassau County, New York, was $1.86 a gallon when Obama became president and is $4 now, Romney said. Obama said the price was lower in 2009 because “the economy was on the verge of collapse.” The average price in Nassau County was $3.921 yesterday compared with a record of $4.346 on July 8, 2008, when George W. Bush was president.

Even with a drop to $3.40 a gallon, “the national average price of gas will be the highest on record for a U.S. presidential election day,” said Green of AAA.

California Push

The national average cost of gasoline was pushed higher by the 12 percent increase in California, to an all-time high of $4.671 on Oct. 9. Prices there had jumped 50.3 cents the prior week as refineries reduced output and Chevron Corp. halted a crude oil pipeline because of contamination.

California prices averaged $4.312 a gallon yesterday, or 35.9 cents below the record, and may fall further, bringing the national average down, Fred Rozell, retail pricing director at the Oil Price Information Service in Wall, New Jersey, said yesterday.

“What’s exaggerating the fall is the strong run-up in prices we saw,” Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania, said by phone yesterday.

Retail prices may drop as low as $3.25 a gallon by Thanksgiving on Nov. 22 and to a 2012 low of $3.10 by the end of the year, Green said.

Winter Fuel

Fuel production may rise as retail outlets switch to winter-grade fuel, which doesn’t have to meet as stringent emissions specifications and can be made from a wider variety of blendstocks, such as butane. U.S. gasoline output has risen an average of 3.6 percent in the fourth quarter during the past five years.

With the seasonal shift to winter-grade gasoline, “you will see prices continue to fall and bottom out around Thanksgiving,” Schork said.

U.S. gasoline stockpiles rose 1.44 million barrels last week to the highest since Aug. 31, according to Energy Department data. Refinery rates, down to 84.7 percent in the week ended Sept. 7, were 87.2 percent last week, according to department data. Demand for the motor fuel sank 2.7 percent last week to the lowest level since March.

“Prices are not going to be a negative for the president,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York, who expects prices to drop 10 to 15 cents more by the election. “You won’t be talking about why pump prices are going to $5. If they were high, that would be problematic for Obama.”

Energy Independence

U.S. crude output rose 4,000 barrels a day to 6.61 million barrels a day in the week ended Oct. 19, the most since May 1995, an Energy Department report showed yesterday. Production last week was 12 percent higher than during the same period a year earlier. Output climbed in the previous three years after declining for 11 of the previous 12, based on weekly data.

A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma. North Dakota’s output rose 26 percent this year through July, according to the department.

The U.S. met 83 percent of its energy needs in the first six months of 2012 and is on track for highest level of self - sufficiency since 1991.

As Obama and Romney each try to convince voters that they can best manage the economy, the drop in fuel costs coincides with some indications that the economic recovery is gaining momentum.

Consumer Confidence

Retail sales in September and August had the best back-to- back showing since late 2010. Cars and light trucks sold at a 14.9 million annual pace in September, the most since March 2008, according to Ward’s Automotive Group.

U.S. consumer confidence jumped in October to the highest since before the recession began five years ago, according to the Thomson Reuters/University of Michigan preliminary October consumer sentiment index.

Dropping gasoline prices may boost retail sales going into the holiday season, Patrick DeHaan, a Chicago-based senior petroleum analyst for GasBuddy.com, said in a phone interview.

“There’s a powerful psychological tool in gas prices,” he said. “When people are able to feel good about what they’re paying at the pump, they feel better about the economy and better about their lives. Low gas prices are like a high-powered anti-depressant, it really gets people happy.”

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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