Crude 'Cocktail of Influences' Propping Up Retail Price

Increase now 40 cents strong, says Lundberg

Crude Oil Lundberg Survey (CSP Daily News / Convenience Store Petroleum)

CAMARILLO, Calif. -- The U.S. average retail price of gasoline moved up another 8.53 cents per gallon in the past two weeks, to $3.6918, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. At the recent bottoming out point 10 weeks ago on Feb. 7, the price was 39.74 cents lower.

This latest hike, unlike the smaller one of the prior two weeks, comes chiefly from crude oil prices. For example, West Texas Intermediate rose $3.16 per barrel, or 7.52 cents per gallon. The small difference between WTI's and retail gasoline's rise appears in the U.S. average retail gasoline margin, up narrowly to 11.45 cents. Refining margin on gasoline lost a little ground.

In addition to two OPEC member countries, Venezuela and especially Libya, suffering low oil output weakness in the U.S. dollar is supporting crude. They are real physical barriers on supply, whereas Ukraine tensions are indirect. Another possible ingredient in oil traders' cocktail of influences, even though it brings no alteration to the oil supply balance, is the just-announced delay in the State Department decision on the Keystone Pipeline.

Ethanol's further downward price correction in these two weeks helped keep the gasoline price from rising even more, as did a rise in the refinery capacity use rate over the past four weeks, up to a robust 88.8%.

Preliminary EIA gasoline demand data point to an extremely robust rise of 4.6% which, if it proves true, amounts to hefty gasoline price support. Pent-up demand from extreme winter conditions is likely being released now. A counterpoint to that is the fact that the current average street price carries a 15.55 cents-per-gallon premium over its year-ago point on April 19, 2013, a negative influence on consumer demand.

From here, unless crude oil prices leap again, the most likely retail price move is to peak very soon if it has not already. In Southern California, the spot price tumbled 15 cents in the past week, racks are falling, and even DTW is down about 7 cents. Retail probably can't hold out much longer, as the average Los Angeles retail margin currently 21.88 cents per gallon on regular, up 11.11 cents since April 4, is not long for this world.

That the U.S. average retail margin improvement of 1.2 cents per gallon in these two weeks happened at all is noteworthy during a time of rising prices. For downstreamers, one reasonable scenario is that the next few weeks will take some margin from refiners, but give to retailers.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.

Click here for previous Lundberg Survey reports in CSP Daily News.