Unless you’ve been living under a rock, don’t drive an automobile, or have been so fixated on the Summer Olympics that you haven’t had time to absorb the news, you’ve probably noticed that gasoline prices have spiked dramatically over the past two weeks.

There are numerous events that have been directing things behind the scenes here:

First, positively viewed comments made by European leaders and the president of the European Central Bank were taken as a sign that the Eurozone crisis might not be as severe as originally thought.  This in turn would translate into stronger than anticipated demand for crude oil.

In addition, news out of China indicated that the nation’s economic growth would gradually ease, rather than quickly cool off. 

So fairly short order the future didn’t look quite as gloomy as the world had assumed it would be.  This small bit of optimism was all it took to assume that demand for crude oil would grow.  As a result, crude oil prices started a slow but deliberate climb in early July. 

Here in the States, WTI prices increased from around $82 per barrel in June, to about $89 by the third week in July.  Correspondingly, regular grade gasoline prices increase from $3.36 per gallon the week of 7/2, to $3.50 per gallon the week of 7/23.

Now late July and early August are when things get really interesting.  Here’s a quick breakdown of a series of unusual events that occurred over a very short period of time:

  • July 23rd, a fire strikes a BP refinery in Indiana.

  • July 27th, a leak shuts down a crude oil pipeline in Wisconsin. 

  • July 28th, Citgo shuts down an Illinois refinery for unplanned repairs.

  • August 3rd, the BEA releases a better than anticipated jobs report for July, indicating stronger than expected future demand here in the U.S.

  • August 6th, a fire breaks out at a Chevron refinery in California.

This brings us to the end of the first full week in August.  As of this writing, gasoline prices stand at a national average of $3.67 per gallon, or about 17 cents higher than where they were just a two weeks ago.

That’s quite the jump over a very short period of time.  So what kind of impact has this pronounced and unexpected spike had on used vehicle prices?  The short answer is, not much.

When spikes like this have occurred in the past, typically we’d see car prices strengthen and truck prices fall, but on an over-the-month basis, we didn’t much of an effect on fuel sensitive segments.  For example, with drops of just 0.7 and 0.8 percent, wholesale prices for mid-size utility and large pickups barely moved last month, while compact and mid-size car prices dropped a steep 2.9 percent apiece.

We’ve yet to see any discernible change to this pattern over the past two weeks either, and in fact, trends have remained very stable.

We don’t expect things to deviate too much from the present course over the coming weeks either.

Here’s why –

As of this writing, the burst pipeline in Wisconsin has already been fixed and most of the other refinery issues have also been addressed.  Also, the magnitude of the refinery fire in California isn’t as severe as initially thought.  In addition, the end of summer also marks the return to winter blends of gasoline, which are less expensive to produce. This will also see gasoline prices fall.  In fact, prices have already dropped a tick in the Midwest.

Considering these points, we only expect to see mild price fluctuations for fuel sensitive segments over the coming weeks, although it wouldn’t be surprising to see more pronounced changes in effected regions, particularly California and the Pacific Northwest (gasoline prices are still rising here).

Conditions in Europe will continue to ebb and flow and prices for crude oil will follow right along.  Based on initial downbeat reports appearing to confirm second quarter contraction in certain European economies (particularly France), it wouldn’t be surprising to see oil prices fall next week when Germany and France officially announce Q2 GDP figures. 

Unfortunately this type of movement comes with the territory of such a volatile commodity. The good news is that many analysts, including our own, are predicting that crude oil prices – and subsequently gasoline prices – will be lower on average next year. 
That being said, one can never rule out temporary disruptions caused by an odd refinery fire or two.