Retail Margin Is Golden … For Now

Gasoline price down on Libya, Iraq, says Lundberg

Lundberg Survey gas prices (CSP Daily News / Convenience Stores / Gas Stations)

CAMARILLO, Calif. -- The U.S. average retail price of regular grade gasoline shed four cents over the past three weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. It sits eight cents under its year-ago point, an encouragement for gasoline demand.

The drop is an echo of the sigh of relief in the crude oil market.

Ramped up production from Libya, although still modest, and the lack of output interruption from Iraq despite that country's turmoil, reduced the amount of risk premium that had been built into oil prices. The sizable oil price cuts, with Brent's decline some $2 per barrel deeper than WTI's, are sending wholesale gasoline prices tumbling.

There is more to come, with refiners still passing through their crude oil buying price cuts into the wholesale gasoline market, and jobbers and retailers doing likewise into retail. If crude oil prices do not pull a turnabout and leap back up, then retail prices will continue stepping down, perhaps four to seven cents per gallon over the next several days.

Oil output stability remains tenuous for the two OPEC members in the news and for others. Despite the U.S.'s reduced dependency upon foreign oil, fungibility of the world's crudes is enough to move retail gasoline prices up and down depending on events implicating production.

Despite the roller coaster news battering the oil market up and down, U.S. gasoline prices have hovered on a relative plateau for 12 weeks.

The average price has been unusually stable since April 18, throughout several geopolitical crises including Ukraine, Libya and Iraq, implicating energy markets.

Meanwhile, downstream margins have benefited. Refiner margin gained a little, and retail margin burgeoned. Retail margin expanded from a weary 10.46 cents per gallon on regular on June 20 to a buoyant 19.68 cents on July 11. It is at its best width since Sept. 20, 2013. Some of the highest margins on July 11 are in the Northwest, in the 35-to-42-cent range (Seattle, Reno, Portland and San Francisco Bay). At the other end are some that are less than a nickel (Cleveland, Salt Lake City and Tucson) in the July 11 snapshot.

Retail margin levels are just as fleeting as are price levels. Gasoline price must dance to crude's mood, and to a degree margin does too. Retail margin will probably lose some ground on average as more retailers receive wholesale price cuts and adjust street prices.

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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