Street Prices, Margins Both Up

Both will drop, says Lundberg; Gulf oil spills on industry

CAMARILLO, Calif. -- The May 7 average retail price of regular grade is up 7.26 cents per gallon from two weeks ago, to $2.9204. It resumed rising after a two-week hiatus, according to the most recent Lundberg Survey of 2,500 U.S. gas stations. But that price is on a cliff, about to be pushed off by crude.

Crude oil shed nearly $10 per barrel last week, as traders viewed various negative indicators for demand. In the past three days, crude's crash has already translated to extreme cuts in unbranded rack, and reducing branded and dealer buying prices quickly.

We will [image-nocss] probably see a swift retail price decline, but probably not the full equivalent of oil's price cut. Oil prices should continue to gyrate and may regain some of their loss; but even if they do not, retailers will be trying to hang on for dear life some of their latest, and hefty, margin gain. It was just days ago that retail margin was thinner than a dime on a national average basis. Now, thanks to lag time, the current average margin on regular is 23.4 centsbut is about as perishable as the average retail price.

Both could easily drop a dime in coming days. Meanwhile, on April 20, 2010, the BP-commissioned offshore oil rig Deepwater Horizon caught fire, then sunk, with 11 worker fatalities, reportedly spilling 5,000 barrels per day. Efforts to stem the flow and minimize environmental damage continue.Remember the March 24, 1989, oil spill disaster at Port Valdez, Alaska? Twenty-one years ago, nearly to the day, the industry mourned the oil tanker Exxon Valdez's accident.BP, with help from many hundreds of industry and government experts, has not yet found an operative culprit for the April 20 explosion.It now has daily updates on its website, and it is training thousands of cleanup volunteers. Exxon in 1989 bought heavy ad space urging the public to not blame their marketers and franchisees for the disaster; now, BP may well be moved to do the same, said Lundberg.

By the time ultimate Gulf volumes spilled, potentially damaging four states, are known, we may find that the legal/financial impact upon BP will dwarf what hit Exxon.

Here is a short list of what the two disastrous events have in common:

They are both extreme rarities in petroleum operations, worldwide and especially in the United States. They both caused environmental damage. They both lost some volume of a precious resource that world consumers need. They both received heavy press attention, necessarily much of it negative. They both spawned many calls for boycott of the brands. And each of the two events hurled some damage at the psyches and the businesses of the total industry, from oil explorers to retailers.

What else the two events may have in common, and what they do not share, will be revealed in coming weeks. For now, we know that the backdrop in 1989 was strong world oil demand growth and slightly rising oil prices, while in 2010 demand recovery is still iffy. Crude oil prices are off some $8 per barrel since April 20, to $75.11 on May 7. We also know that the anti-petroleum movement, with all its movable parts, is far broader and more opportunistic than it was two decades ago. Recent dispatches from "green" groups for press and political consumption are definitely more slick, voluminous and viscous than in 1989.