CAMARILLO, Calif. -- The national average pump price of regular-grade gasoline slipped 0.54 cents per gallon (CPG) during the past three weeks. It has gyrated in range of less than a nickel over the past 13 weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. There wasn't even a significant "spring price run-up" this year.
The reason, more than any other single reason, is U.S. shale oil. In fact, in a narrow way, the United States has replaced the Organization of the Petroleum Exporting Countries (OPEC) or even Saudi Arabia as a high-profile oil price governor. Shale oil in Texas, North Dakota and elsewhere responds rapidly with output hikes when world oil prices strengthen by a few dollars, and with curtailed output when oil prices decline. This has transformed OPEC cutback decisions into short-term oil price hikers.
SOB, or the Shale Oil Band, manifests U.S. shale-oil production's response to the world oil market: Just a few dollars per barrel lower and shale-oil output shrinks down, while a few dollars higher and shale oil roars back. Of late, it has kept the price effects of OPEC production reductions in check.
Shale oil has done more than keep retail gasoline prices lower than they otherwise would be; it has also reduced retail price volatility.
OPEC and other oil producers, and some analysts, predict and cheer for high oil prices. The answer to them is SOB.
Many gasoline market commentators say U.S. gasoline prices surge every spring. The same answer, SOB, explains why they did not in 2017.
Other contributors apart from oil production have contributed to pump price stability, including formidable U.S. refinery gasoline. This year, flush gasoline supplies on top of stable oil prices outweighed three perennials: the seasonal gasoline demand curve, seasonally rising costs of summer-blend gasoline specifications and seasonal refinery maintenance. The June 2 Lundberg Letter reported that the average spring run-up during 2005-2015 was 30 CPG, and that price seasonality even pre-2017 has been waning.
While motorists suffered no big spring price spike and escaped price volatility, gasoline retailers have endured great margin volatility and some lean times. Currently they are enjoying margin recovery. Fortunately for them, refiners passed through the big oil price drops that occurred in the past few days into wholesale gasoline. Retailers, in the aggregate, pocketed that bonanza. In reality, some did not even receive wholesale gasoline price cuts, and may not at all if oil prices rebound right away.
On average, the June 6 retail margin on regular-grade gasoline regained more than a dime and sits at 23.87 CPG. Year to date, though, retail margin is 1.58 cents poorer than it was during calendar year 2016.
Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries.
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