CAMARILLO, Calif. Nationwide, regular-grade gasoline prices fell 20.41 cents in the past two weeks, to $2.8076. They will most likely fall further, and soon, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations.
In the past month, the oil industry in all its parts did a heroic job of bringing supply back after Hurricane Katrina, and of exerting retail price hikes that kept demand in check. Most of the refining capacity came back, along with pipeline capacity, [image-nocss] capacity utilization surged and gasoline imports rushed in to help fill the gap. Demand falloff that occurs every September will prove deeper than usual because of higher prices (and because in storm-ravaged areas, demand collapsed).
Now Hurricane Rita, hitting within a day of our retail price update, has proved to have done much less damage to refining capacity than had been feared. Although some price predictors announced $4 a gallon, $5 a gallon and higher, such statements discounted both industry performance and demand response. Worse, they arguably contributed to panic-buying and dry tanks, increased the chance of product runout for emergency vehicles and encouraged officials to hunt for gougerswhich inhibits retailers from freely hiking prices as they should do in times of supply stress.
Demand's response to price will continue, as will imports, restoring supply and pulling gasoline prices down. This assumes crude oil prices will continue to weaken as the Organization of Petroleum Exporting Countries (OPEC) maximizes its crude oil output and the world's demand for crude is tempered by recent high oil prices.
Retail gasoline margin gains on regular grade were forfeited in the past two weeks, but they remain double-digit; however, for 2005 to date, they are under a dime as they have been for the prior 10 years. While retail margins might forfeit a bit more, refiner margins are likely to forfeit some of their gains as more capacity comes back on stream. That is where some of the retail price cuts will probably come from: OPEC (and non-OPEC) producers rebating a bit of their high profits back to the downstreamand to consumers.
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.