CAMARILLO, Calif. -- On May 16, the Chicago metro area regular grade average retail price was $4.07. Long Island was $4.01. For the first time ever, there are a couple of large metro areas now averaging above four bucks. The large panels of stations include all prevailing major and independent brands and hypermarketers like Costco and Wal-Mart. Nationally, regular at retail gained 16.84 cents in the past two weeks, to $3.7929, a new all-time inflation-adjusted high, according to the most recentLundberg Survey of approximately 7,000 [image-nocss] U.S. gas stations.
The retail hike would have been about 24 cents instead of 17 if not for retailer margin shrinkage and slight refiner margin shrinkage. The gasoline industry did not fully pass through its higher cost. But retailer margin on regular is a normal-looking 11 cents, while refiner margin on regular is about 21 cents—less than half its level of the past two years and a fifth of its mid-May 2007 size, narrow enough to keep some refining capacity shut in red ink and gasoline exports inferior to their year-ago weekly level.
National attention on the prospect of $4 gasoline inspires debate dozens of related factors including falling demand vis a vis last year, seasonally rising demand, Summer supply, and the crude oil price, with barely a salute to the hard facts of industry gasoline margins. To the long list of crude oil price influences we now add two supply plusses and two supply negatives: the cessation of filling the Strategic Petroleum Reserve and the (more significant) Saudi pledge to increase oil production, versus China's sudden need for more diesel fuel during restoration of power after its May 12 earthquake and Iran's statements that it may reduce oil production. So one plausible oil price scenario would be little change short-term. If so, refinery gasoline margin improvement by a couple of dimes, putting the average street price above the "magic" $4 would be a high-profile target for industry detractors. And refining margin would still be low.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.