CAMARILLO, Calif. -- The average pump price rose 0.8 cents in the past two weeks to $2.2613 per gallon for regular grade, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. Crude-oil prices, the "big daddy" of gasoline price influences, crashed during the same period. Where did the oil price decline go?
It went to U.S. downstream gasoline margins. Refiners regained an earlier loss, and retailers built on their prior partial recovery. The oil price drop was very close to the amount of combined downstream margin gain.
It would have been more or less a wash. However, in the same period, New Jersey raised its gasoline tax high enough to increase the volume-weighted national average gasoline tax by close to a penny (federal, state, local and sales taxes combined). Newark, N.J.’s total tax is now 55.55 cents per gallon (CPG), keeping company with the tax in Philadelphia, Chicago, Long Island, N.Y., and many markets in the West.
The second Colonial Pipeline mishap in two months resulted in a fatality and several injuries, but did not appreciably disrupt the gasoline market. Gasoline futures had a knee-jerk jump, but it was not sustained to the street thanks to rapid repair. In fact, pump prices in many Southeast markets declined: Birmingham, Ala.’s average fell by nearly 4 cents over the two weeks, and some others fell more.
So the modest pump price increase was not from the Organization of the Petroleum Exporting Countries (OPEC) or the Colonial pipeline shutdown, but from righteous industry margin recovery—and New Jersey’s gas-tax increase.
Retailer margins currently range from less than a nickel to eye-opening widths of more than 40 CPG on regular grade. (In poor Newark, where the average retail price increased 23.39 CPG since Oct. 21, margin is currently below 9 cents.) Nationally, regular-grade retail margin was 23.28 CPG on Nov. 4. It is neck and neck with the 2016 year-to-date margin, and may well beat that annual, all-time record high.
Demand is taking a beating: Seasonally it is headed downhill as usual, and the Nov. 6 loss of daylight saving time kicked it down an extra notch, as usual. Demand also appears to be shrinking year on year. The high numbers of unemployed and underemployed seem to be taking a special toll, with further discouragement coming from the current price premium to last year: The Nov. 4 price is 1.59 cents above its year-ago point.
Unless there is a curtailment of crude-oil or gasoline supply, pump prices will likely plunge by several cents in the near future. Supply, already ample, will be expanding with the completion of more refinery maintenance projects, and downstream competitors will be spurred to cut price to chase sales when they can.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries. Click here for previous Lundberg Survey reports in CSP Daily News.