Gasoline Falls on Concern Fed Policy Shows Struggling Economy

Gasoline slid on concern that the Federal Reserve’s decision to leave intact its level of bond buying indicates the U.S. economy is still struggling and demand is weak.

Futures sank 1.6 percent. The U.S. central bank said it wanted to see evidence that economic gains could be sustained before reducing the $85 billion monthly pace of asset purchases. Gasoline and diesel were also under pressure as crude prices retreated after Libyan production increased.

“If the economy is weaker than we think, that’s going to hurt demand,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Yesterday’s announcement was a double-edged sword. It said the economy is not strong enough and that the Fed has got your back.”

Gasoline for October delivery fell 4.49 cents to $2.6972 a gallon on the New York Mercantile Exchange. Trading volume was 2.2 percent below the 100-day average at 5:02 p.m.

Fed Chairman Ben S. Bernanke said yesterday he was “somewhat concerned” by the impact of rising bond yields on the economy and wanted to “wait a bit longer and to try to get confirming evidence” that the economy is showing signs of lasting improvement.

Prices also fell on speculation that a jump in wholesale gasoline deliveries last week were caused by exports that were higher than estimated by the Energy Information Administration and aren’t an indication of stronger demand.

“People are writing off the demand increase as either a one-week anomaly or basic export demand and not domestic demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Gasoline Demand

Gasoline consumption jumped 4.9 percent to 9.03 million barrels a day last week after sliding 5.4 percent the prior seven days, the EIA reported yesterday. Demand over four weeks was 0.5 percent above a year earlier. Gasoline inventories dropped for the fifth time in six weeks Sept. 13.

Brent for November delivery fell $1.84, or 1.7 percent, to end the session at $108.76 a barrel on the ICE Futures Europe exchange as Libya’s production increases following the reopening of two fields.

“Brent is under pressure from the continued return of Libyan crude oil to the market,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Crack Spreads

The motor fuel’s crack spread versus West Texas Intermediate crude narrowed 21 cents to $6.89 a barrel. The fuel’s premium over Brent slipped 14 cents to $3.78.

Pump prices, averaged nationwide, fell 1.2 cents to $3.494 a gallon, 36 cents below a year ago, Heathrow, Florida-based AAA said today on its website. Prices have fallen 17 consecutive days to the lowest level since July 8.

Ultra-low-sulfur diesel for October delivery fell 3.65 cents, or 1.2 percent, to $3.004 a gallon on trading volume that was 7.3 percent below the 100-day average.

ULSD’s crack spread versus WTI gained 15 cents to $19.78 a barrel. The premium over Brent rose 35 cents to $17.49.

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