Buoyant Crude, Buoyant Margins

Pump prices finally slip, says Lundberg

Lundberg Gas Prices (CSP Daily News / Convenience Stores / Gas Stations)

CAMARILLO, Calif. -- The average pump price of regular grade slipped 3.49 cents in the past two weeks, after rising nearly 43 cents over three months, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. The new price, $3.6876, is just 3.10 cents per gallon above its year-ago point.

The price would have dropped more if not for buoyant crude oil prices and a hike in ethanol prices.

As usual, crude oil prices will be dominating where gasoline prices go. Among the myriad factors moving the oil market are five hot-spots around the world that are built into current oil prices: Russia vs. Ukraine, China vs. Vietnam, and three OPEC members--Nigeria, Libya, and Venezuela--where oil output has been hindered by domestic strife and management challenges.

June 1 is the Russia-imposed deadline for Ukraine to pay up for natural gas, which Ukraine has said it will do if Russia reinstates an earlier deep price discount, so the next few days are pregnant with potential petroleum market upsets. With multiple, volatile situations globally that can quickly impact world oil supply, we can consider three U.S. pump price scenarios: A crash in oil prices from lessening of tensions allowing U.S. pump prices to race down; a big rise in oil prices if tensions escalate; or a basic status quo with little change in oil prices, which would probably mean continued pump prices declines but at a gentle pace.

U.S. gasoline supply is more than sufficient to meet demand, and refinery repair and maintenance projects and passthrough of higher costs from Spring-Summer gasoline reformulations are mostly complete.

Both U.S. refiner and U.S. retail margins "skinnied" a bit in these two weeks, as the weighted wholesale gasoline price fell less than the average street price did. But both remain buoyant. Year-to-date, retail margin on regular is 1.3 cents per gallon lower than it was during full calendar year 2013. Ahead of the next three months of peak gasoline demand, the performance of the combined downstream sector--refiners and retailers--is decidedly robust.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

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