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OPINIONFuels

After All-Time Best Year 2018, Retail Gasoline Margin Back to Earth

Is the pump price crash finally spent?
Photograph: Shutterstock

CAMARILLO, Calif. -- The national average retail price of regular gasoline is down 66 cents per gallon (CPG) since Oct. 5, 2018, just 14 weeks. The current price, $2.3102 per gallon, is 11.59 cents lower than it was three weeks back, according to the most recent Lundberg Survey of U.S. fuel markets.

This price is nearly 23 cents below its year-ago point, an encouragement for motorists.

What made the pump price crash is now poised to make it stabilize, or rise moderately, in the near future. Crude oil prices are up in these three weeks and are beginning to appear in wholesale buying prices in many locations. West Texas Intermediate, for example, rose $6 per barrel, the equivalent of 14 cents per gallon (CPG) between Dec. 21 and Jan. 11.

In the U.S. Gulf region, unbranded rack has been leaping in response: close to 12 cents higher. Nationally, unbranded moved up close to 6.7 cents. The Lundberg weighted wholesale price edged up 11.59 cents for regular grade, and a bit more for other grades.

If crude oil prices hold, broad pass-through into wholesale channels around the country can be expected.

Wholesale price increases may well amount to more than pass-through of higher oil prices. U.S. refiners, despite doing good diesel business, are in painful gasoline margin territory. They are hanging on to diesel as a solution to overall gross product worth and are willing to overproduce gasoline to achieve that end. The nation's refining sector is using 96.1% of total capacity at this time, the trough month for gasoline demand. The timing of some recovery of refiner gasoline margin may reveal a taking of margin over and above price increases in crude oil, or may be obfuscated if margin relief comes when crude oil prices have again lost ground.

For retailers, the loss during these three weeks was sharp: 15.8 cents. However, the national average retail margin on regular grade is a historically livable 21.56 cents. It’s not the 37.36-cent pre-Christmas level that retailers on average achieved, but it is very close to the annual average 2018 margin.

Retail margin on Jan. 11 was back down to earth, but the sector is still aglow from a stellar 2018. As shown in the Jan. 10 issue of Lundberg Letter, both regular grade and all-grades’ pooled retail gasoline margin were the best they have ever been. The dollar value of the margin was more than double what it was in 2009. The fact that nearly all the improvement over 2017's margin was the result of passing on to motorists the big increases in costs of doing retail gasoline business—including labor costs—does not diminish retailers' accomplishment.

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.

 

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