CAMARILLO, Calif. — During the past two weeks, the national average regular-grade pump price climbed 12.69 cents per gallon (CPG) to $2.9118, according to the most recent Lundberg Survey of U.S. fuel markets. Over four weeks, it is up nearly 25 cents. Over four months, there has been a surge of more than 60 cents.
At first it was mostly crude oil prices driving the increases. In January, the rise was only two pennies, then 11 cents in February, and 22 cents in March. The reason for the continued and steeper price climb is that more elements have mounted on top of higher oil prices. The topmost price-increase contributor now is repairs and maintenance at many U.S. refineries, including several unplanned projects.
Adding to gasoline cost increases is the Midwest flooding that locked in ethanol supplies away from distant consuming centers. The shift to costlier spring/summer gasoline blends, while well progressed, is still going on. Those two factors each owe their timely price damage to federal regulations.
Plus, in these two weeks, crude oil did contribute another dollar-per-barrel price increase to the mix.
Some of the idled refining capacity will be coming back online soon, while some of it will reportedly take several weeks to achieve. Refiners long to bring capacities back up to chase needed gasoline sales, but ensuring safe operations is paramount. The U.S. is already importing ethanol from Brazil to offset Corn Belt woes.
Price damage is dampening gasoline demand to materialize lower than it otherwise would, a “plus” for the supply balance but not for downstreamers' sales.
Refiner margin on gasoline is decidedly in the pink, and as big chunks of capacity are reactivated after repairs and supply swells, that margin may shrink—maybe by the 3 to 5 CPG that gasoline retailers would need to add to theirs, for their margin to resemble what was more typical of recent years. If so, it could be a wash, with combined downstream margin little changed. April 19 retail margin on regular grade was a gain of 2.47 cents over its April 5 level, but is still a gaunt 15.67 cents. All-grades pooled margin: under 17 cents.
Relatively few consumers pay the U.S. average retail gasoline price, but press and pundit attention to special milestones—for example $3 as U.S. average, or an average $4 in California—is insistent. It was barely over a year ago on June 8, 2018, that the U.S. average did reach $3.01 per gallon. And during four long years—2011 through 2014—national average pump prices soared far above that. The four-year U.S. average: $3.51.
If much refining capacity repair work is concluded soon and crude oil prices are calm, then gasoline prices may well peak and even crash during the early days of May. Both refiner and retailer gasoline margins may bloom fair. Spring may come a bit late for gas station operators and be warmly welcomed.
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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