Posted in: Gas Prices,
by Patrick DeHaan on Jan 23, 2013 11:19 AM
If you've failed to realize, it's Wednesday, the day of the week that the Energy Information Administration (EIA), a wing of the Department of Energy, typically releases a weekly petroleum status report. Well, as there was a legal holiday Monday, the release of the weekly report is pushed back a day. So instead of highlighting the report today, I'll take a moment to explain why the report is likely one of the biggest factors into gasoline prices.
The report highlights changes in supply, demand, and basically everything in between. It gives a glimpse into the refining sector, how much of their capacity they've been using, how much oil is being imported into the U.S., as well as how much oil is stockpiled in the Strategic Petroleum Reserve. I could go on- but you hopefully get the picture- this report has thousands of numbers that matter.
But why are these numbers so significant that they can drive prices up or down? They outline the most important factors to traders and sellers who buy and sell gasoline on wholesale markets. The EIA data is digested and reviewed by many sources that play in energy markets, and can have a far reaching impact on how those traders determine if they want to buy at a given price or sell at a given price.
Let's give a situation out- let's say tomorrow's EIA report shows a large increase in gasoline inventories. More than likely that information will put sellers under pressure and the market for the short term becomes a buyers market. Why? Because the EIA data showed that gasoline inventories rose significantly, thus refineries need to offload material, and are willing to take less money. On the flip side, if there's a large decrease in gasoline inventories, buyers may outnumber sellers, driving bids, and thus retail prices higher.
Many Americans believe oil companies set the price for gasoline, and to some degree that's true and false. But there is competition which helps keep companies in check. Say a refiner- company A- wanted to sell at a much higher price than another. Buyers would simply look for gasoline elsewhere and not buy from company A, perhaps buying cheaper gasoline from company B. Company A would then start to see demand drop and would be forced to lower their price.
And so the EIA report that comes out every week highlights the fundamentals of oil and gasoline and if supply is lax or tight, and if demand is lousy or strong. And these are the key impacts behind how gasoline prices are determined. If Americans would drive more fuel efficient cars en masse, we could theoretically notice lower demand, and thus prices could fall- but the wildcard of exports then comes in to play. I could go on all day trying to explain it.
At the end of the day however, the EIA remains one of the key pieces of information that we break down for you weekly, and of all the blogs or entries we post here, it is likely the most important one- by a long shot. Want to have an idea where gas prices will go? Simply check the EIA report, and watch prices react.