CAMARILLO, Calif. -- Retail gasoline prices crashed more than 15 cents per gallon in the past two weeks, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations. The August 25 regular grade averaged $2.8714, down 15.42 cents since the August 11 survey. It's the biggest drop since September 2005 when prices tumbled from their spike created by storm damage causing product shortage. Now, the only regional average price above at $3.00 and above is PADD 5, the West (regular grade is $3.01).[image-nocss]
The main reason for the price slide is abundant gasoline. High stocks, high domestic capacity use, high imports have met with sullen demand. Ethanol prices moderated again, and crude oil prices continued to hover in their average area of $73 per barrel of recent weeks, so ethanol and crude prices did not confound gasoline's downward price correction. When September's lower consumption kicks in as it always does, the gasoline supply-demand balance will probably promote still more price cuts at the pump.
What gasoline demand is actually doing lately is unknown despite widespread media reports of growth. Government data showing growth have peculiarities and no revisions have yet been issued; meanwhile Lundberg data covering many states for the early months of the year indicate either no demand growth or real shrinkageso government demand growth figures should be taken with big grains of salt.
As usual, the two hot caveats for future gasoline price declines are that no substantial threats to either world crude or domestic gasoline supply occur.
By Lundberg's measures, refiners gave up margin in this two-week period, falling well under their July heights. Retailers, too, may give up margin near-term because of very recent deep wholesale price cuts. For example, the average Midwest regular grade unbranded price fell 12 cents between August 23 and 25, branded dropped 9 cents, and dealer buying prices fell nearly a nickel. (It was in PADD 2 that retail prices fell the most: more than 22 cents in two weeks.)
For another, East Coast unbranded fell 9 cents in one day alone, August 25 vs. August 24. The regular grade regional average Gulf Coast retail margin on August 25 topped 25 cents, after having already shed nearly 7 cents of its August 11 level.
As the country's high gasoline demand season ends in the next few days and consumption dips, retailers might face big competitive pressure to chase sales. In the United States overall, retailers suffered through much skinnier single-digit margins in late June through late July, then got well, on average, in August. The 20-cents-per-gallon regular grade margin of August 25 will probably prove fleeting.
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