High Pressure on Low Retail Margin
Refining issues hike pump price 11 cents, with more to come, says Lundberg
CAMARILLO, Calif. -- The average retail price of regular grade gasoline at retail jumped 11.19 cents in the past two weeks, to $3.6566 per gallon, according to the most recent Lundberg Survey ( www.lundbergsurvey.com) of approximately 2,500 U.S. gas stations. And this was without a significant rise in the price of crude oil.
Refineries with some capacity off line for planned and unplanned repairs and maintenance, especially in the Midwest but also on the West Coast and elsewhere, created hot spots in supply that the downstream industry is scrambling to rectify. Along with several Midwest plants, the Carson plant in Southern California, now Federal Trade Commission (FTC)-approved for sale by BP to Tesoro on June 1, is also crimped.
As repairs continue, refiners and marketers are also trucking gasoline supplies to markets affected. It is in their enlightened self-interest to do so as they chase better margins. As usual, this is expanding supply and reducing prices in areas affected by refining glitches.
Already in Chicago, the average pump price has slipped nearly three cents per gallon in the past two weeks, to just under $4.25. But in Minneapolis the price zoomed nearly 62 cents, to more than $4.27.
Midwest regular grade average unbranded rack is up 34.36 cents per gallon since May 3 (and up nearly 11 cents just between May 16 and May 17) with midgrade and premium up nearly as much.
The U.S. average retail margin is at a depressing 9.11 cents per gallon on regular, the lowest it has been since early February. Many retailers just can't hang on much longer without hiking street prices, or they will imperil their businesses. For this reason alone, we can expect a few more pennies at the pump over the next few days, unless crude oil prices should show extreme change up or down.
Adding to the cost of gasoline and therefore contributing to price are the switches to lower Reid vapor pressure (RVP) standards due June 1 at retail and the rising cost of credits that refiners failing to comply with the federal ethanol blending mandate must purchase for regulatory forgiveness. Both these costs are built into today's higher gasoline prices.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.