CAMARILLO, Calif. -- Retail gasoline prices rose 10.73 cents in the past two weeks, to $2.9952 per gallon. That's $3 gasoline, rounding up less than one half a penny. We are within two cents of last September's nominal high brought by gasoline shortages from hurricane damage, and within six cents of the inflation-adjusted high (March 1981 using today's dollars), according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
Another hike in crude oil prices is the cause. [image-nocss] If not for consumers' response to price that has arrested demand growth, the price would be even higher.
The oil market's premium over the price that would balance world supply and demand has shot up with latest concerns about Iran and North Korea, with the latter reportedly supplying missiles to the former, spooking oil traders worse than Iran, Nigeria, Venezuela and other countries had already done.
The potential for lessening any of these many oil market tensions exists, as does the potential for world oil demand shrinkage due to spiking prices. This could bring on an oil price collapse, but the market can't bet on this short term.
Meanwhile, these latest 11 cents more in the U.S. average pump price will have their effect on demand, possibly creating actual shrinkage this time, as occurred briefly last year with the hurricanes, translating to down pressure on price. Also, current gasoline supply, refining capacity utilization and import levels tell us the same: that gasoline prices should now stabilize or fall. Although these are powerful factors, by no means do they outweigh crude.
Refiners passed on the higher crude prices, while retailers did not, and lost margin. Even given conditions where the balance of gasoline supply and demand shifts in favor of supply, mounting pressure on retailers to recover their losses will limit the amount of price cutting at the pump.
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