CAMARILLO, Calif. -- Has the hardship of never-before-seen gasoline prices reached an end? Have investors lost their interest in oil futures? And perhaps most importantly, have retailers been able to get through the past year of gasoline-price punditry without losing their shirts?
All signs point to yes, according to a slew of reports on the retail petroleum industry issued this week. In the past two weeks, retail regular grade gasoline prices lost more than 21 cents, according to the latest Lundberg [image-nocss] Survey of approximately 7,000 U.S. gas stations. The U.S. average is $2.6598. In the past month, the price has crashed nearly 37 cents.
The average pump price sits some 35 cents per gallon under that of a year ago, when a spike caused by Hurricane Katrina's damage to petroleum facilities caused a gasoline shortage. On September 9 last year, the price was 38 cents higher than it was two weeks earlier. Today's situation is the opposite, Lundberg said: heavy supply, light demand.
This summer's supply buildup combining high refining-capacity-use rates with huge gasoline imports has met with September's perennial dropoff in demand. Despite some government and press reports to the contrary, hard data will probably soon show that higher prices arrested gasoline demand growth, according to Lundberg, and actually cut into it in much of the countryeffectively adding even more to supply.
Falling crude oil prices contributed to the 21-cent retail gasoline drop since August 25. The light-sweet benchmark near-month futures price closed at $66.25 bbl. on September 8.
And oil prices fell below $66 a barrel yesterday, according to an Associated Press report, as concerns over supplies eased in expectation that OPEC ministers would not change their production targets.
With prices falling and supplies outstripping demand, the 11-nation Organization of Petroleum Exporting Countries (OPEC) was expected to keep its current production quota steady at its meeting yesterday in Vienna, Mohamed Bin Dhaen al-Hamli, the United Arab Emirates' energy minister, told AP.
Supplies remain ample. Al-Hamli said OPEC maintains about 2 million barrels a day of spare capacity, and stocks are high elsewhere; the U.S. Department of Energy said last week that inventories have hit their highest levels since 1998.
Meanwhile, the weeks of $3-plus gas prices may have forced consumers to make fewer shopping trips, but when they get to the store, they're spending more, as they load up their carts each time they shop, according to a Reuters report.
Grocery retailer Supervalu Inc. chairman and CEO Jeffrey Noddle said consumers have been much more resilient than the company expected; however, he believes there is a lag time when consumer behavior will change, so he expects trends to shift.
Shoppers have been "fairly resilient" so far, Noddle told investors at a Goldman Sachs conference on Thursday, according to Reuters. They are visiting Supervalu's stores less often, but once there, they are spending more.
Noddle's comments echoed similar remarks from Safeway Inc. chairman and CEO Steve Burd, who said his company can actually benefit from the higher price of gas. "They're putting more in the basket when they come to our stores, and they're giving more trips to our stores," said Burd, who spoke at the Goldman Sachs conference on Wednesday afternoon.
Wal-Mart Stores Inc, which sells more food than any traditional U.S. grocery chain, also said it is continuing to see customers cutting back on trips to save on gasoline. The grocers asserted that customers may choose their locations rather than drive to stores such as Wal-Mart, which might require a longer trip. But Wal-Mart said it is still seeing consumers come to its stores, just less often.
Shoppers are more likely to make one big, weekly stock-up trip during the weekend rather than drive to the store multiple times each week, Eduardo Castro-Wright, CEO of Wal-Mart's U.S. discount stores, said at the Goldman Sachs conference.
Now it remains to be seen if those trends will hold true as gasoline prices drop, a trend Lundberg said will likely continue.
From here, the likely direction for retail prices is still down, according to the Lundberg report. However, the impetus of the new gasoline supply-demand balance pushing prices down seems mostly spent. Unless crude should fall substantially lower from here, or should an economic downturn afflict gasoline demand, any further retail gasoline price cuts will probably be far less dramatic than what we have just seen.
Refiners' gasoline margins shrank during the past two weeks, while retailers' did not. The latter now average higher, so far this year, than they did during 2005 overall, Lundberg said. The regular grade retail gasoline margin over the past four weeks is the highest it has been since last October when deep wholesale price cuts, following resumption of much product flow after the hurricanes' damage, allowed retail margins to widen.
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.