CAMARILLO, Calif. -- Nationally, the regular grade price fell nearly 12 cents per gallon in the past two weeks to $3.9959, just a hair under the famous $4 mark, according to the most recentLundberg Survey of approximately 7,000 U.S. gas stations. Regionally, the price is $3.87 across both the Midwest and the Gulf states. It is $4.02 in the East, $4.03 in the Rockies, and $4.24 in the West.
Crude oil's steep price decline last week is the prime cause. The price is responding to shifts in demand and supply, and market perceptions [image-nocss] of future demand and supply, in still unknown measures. For example, some countries with government price controls are finding the long standing consumer subsidies now unaffordable, and this is imposing sudden price hikes that may be puncturing demand in those markets; in others, the need for petroleum demand growth is so acute that there is comparatively low price elasticity.
For another, Saudi Arabia's output expansion may be proving weightier than some observers supposed because of softer demand.
Oil's downward price correction brought refiners and retailers much higher margins on July 25. The refiner margin on gasoline widened into healthy black ink after a year of unimpressive to miserable performance, while the retailer regular grade margin more than tripled from its unusually skinny size of July 11. Year to date, retailers have fared better than in calendar 2007 while refiners are much worse off.From here, if crude oil prices hover within the vicinity of their July 25 level of $123.26, continued retail price cuts are probable. This is because the lag time between the various wholesale moves and retail response has allowed for a U.S. average retail margin expansion to 25.50 cents per gallon. Even if refiners were able in today's reduced gasoline demand environment to hang on to their improved July 25 gasoline margin of 33 cents, retailers can't realistically hang on to their 25 cents.Retailers are very temporarily holding the rest of crude's price passthrough to consumers. Passing it through would cut the retail price by about 12 cents. Again supposing crude oil prices don't change significantly, if demand shrinkage is severe, refiners would lose again too—resulting in a greater retail drop of perhaps double that amount.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.