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Gasoline Futures Gain as U.S. Budget Deal Averts Fiscal Crisis

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Jan. 2 (Bloomberg) -- Gasoline rose as Congress approved a budget deal that averts spending cuts and higher taxes for most Americans that threatened the U.S. economic recovery.

Futures climbed as the House passed a bill undoing income tax increases that took effect yesterday for more than 99 percent of households. The bill, already passed by the Senate, avoids more than $600 billion a year in scheduled spending reductions and tax gains known as the fiscal cliff.

“The market is relieved that tax rates will not be rising for the majority of Americans,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Spending cuts have been deferred for several months and demand will continue on its regular seasonal path.”

Gasoline for February delivery gained 3.34 cents, or 1.2 percent, to settle at $2.7951 a gallon on the New York Mercantile Exchange. Prices climbed 4.7 percent in 2012. Volume was 25 percent below the 100-day average. Trading was closed yesterday for the New Year’s Day holiday.

Even as the fiscal crisis was averted, fuel demand could be reduced as the budget deal did not reinstate a two-percentage-point payroll tax cut, which means smaller paychecks for U.S. workers.

“Taxes did go up and that’s not going to help the demand for gasoline so if we did avoid a recession with the budget deal, the net effect is zero,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

Debt Ceiling

Congress must act as early as mid-February to raise the nation’s $16.4 trillion debt ceiling. Republicans are expected to use the need to raise the limit to force President Barack Obama and congressional Democrats to accept cuts in entitlement programs such as Medicare. A similar dispute in 2011 led to a downgrade of the U.S. credit rating.

“The market pushed higher on the idea we’re not going to go off the fiscal cliff, but they were not really able to address any budget cuts,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The next level for gasoline is $2.90 to $3. The next wave of gains will be predicated on signs the economy is improving.”

In a sign of strength for the economy, the Institute for Supply Management’s manufacturing index climbed to 50.7 last month from November’s 49.5, which was the weakest since July 2009, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between expansion and contraction.

Delta Trainer

Futures widened gains after Delta Air Lines Inc. said its Trainer, Pennsylvania, refinery shut a fluid catalytic cracker over the weekend. Inventories of reformulated gasoline, or RBOB, in PADD 1, the U.S. East Coast, fell 5 percent in the week ended Dec. 21 and were 17 percent below a year earlier, Energy Department data show.

“The cat being down will impact supplies of gasoline in the Northeast, particularly RBOB inventories, which fell once again,” Lipow said.

Heating oil for February delivery gained 1.45 cents, or 0.5 percent, to settle at $3.0463 a gallon. Prices rose 3.8 percent in 2012. Volume was 35 percent below average.

The average nationwide retail price for regular gasoline fell 0.1 cent to $3.291 a gallon, AAA said today on its website.

To contact the reporter on this story: Barbara 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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