CAMARILLO, Calif. -- More refining capacity use reduction and the early Daylight Saving Time are making this year's gasoline supply-and-demand balance different and hiking the price, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
It has been common ever since March 1989, when Reid vapor pressure (RVP) rules that add cost for refiners and take their toll on gasoline supply first took effect, for gasoline prices to climb earlier in the season. Spring replaced [image-nocss] Summer as the likely manifestation of price seasonality. Some aspects of Spring 2007 have accentuated the pre-Summer price climb phenomenon.
This year so far, retail prices are up some 60 cents a gallon, most of which came from refinery turnaround projects and mishaps; 60 cents ago, crude was some $12 a barrel, or about 28 cents per gallon equivalent, lower.
The current U.S. average price of self-serve regular, $2.7894, is 18.23 cents per gallon higher than two weeks ago. A small portion of this comes from crude. Most of the hike is from the extension of maintenance and repairs at U.S. refineries (a few small new glitches, some hurricane damage legacy as some prior maintenance had to be delayed, the continued near total shutdown of Valero's McKee, maintenance time at St. Croix, and other events), causing refiners' use of gasoline stocks instead of higher crude oil runs to satisfy demandall against the backdrop of the seasonal lowering of the RVP boom, made even more acute by use of ethanol.
For its part, gasoline demand is strong both seasonally and year on year, and although proof may be hard to come by, pulled even higher by an extra month of "Spring driving" from an hour extra driving opportunity given by 2007's earlier Daylight Saving Time. Lundberg Survey knew it would be contentious when we predicted an effect of 1% additional gasoline demand from the government action, but we believe it is playing some role in current strong gasoline demand, said Trilby Lundberg. In the next few days, the effect will be cancelled, but this won't slow the seasonal demand buildup towards the total of about 12% increase between January and August.
The current retail gasoline price sits nearly 24 cents per gallon below last August's all-time record high. Crude also sits about 24 cents per gallon equivalent under its August 2006 price. The disconnect between the two will probably end in the next several days, as gasoline prices peak and drift down. Those refiners up and running who are raking in fine profit margins will soon be joined by those whose sales have been curtailed by repairs, to compete, along with foreign refiners exporting gallons here, for Spring sales. This could make for some hot rack and street price cutting.
Unless, of course, there is a negative hit to world crude oil supply, real or perceived.
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.