Fuels

Are We Bottoming Out?

Retail gasoline price down another 15 cents, says Lundberg

CAMARILLO, Calif. -- In the past two weeks, the U.S. average regular grade gasoline price fell 14.63 cents to $3.4790 per gallon, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

The cumulative drop since the price peaked in early April: 48.91 cents. This is truly a remarkable drop, nearly 49 cents in less than three months. And, the price sits 15.03 cents under its year-ago level.

Retail diesel has behaved very similarly, down 13.06 over two weeks, down 43.67 cents over the 11 weeks since the peak and a discount versus a year ago of 22.21 cents.

The boon to consumers of our two main transportation fuels comes from crude oil's price crash. The common U.S. benchmark grade dropped about a dime in cents-per-gallon equivalent over the two weeks, and the common European grade dropped more than 25-cents-per-gallon equivalent. The many crude oil grades are sympathetic to one another. A big current input to oil's price losses, among others, is the economic travail in Europe, manifested as some of this pump price relief to American consumers.

Far beyond the summer vacation opportunity, the much lower gasoline and diesel prices are especially acute for underemployed motorists driving to work and seeking more work.

But further declines at the pump won't necessarily continue at this pace. Crude oil price declines would have to be dramatic and sustained for that to happen; at this point they seem just as likely to bottom out and edge back up. Still, it is likely that the U.S. average retail price of gasoline still slip a few more pennies. That's because margin is doing so well, it can probably afford to give up some pennies or in some cases quite a few of them.

Due to the lag time within the wholesale distribution system and the interactive responses to street price competition, retail margin is a wide 28.85 cents per gallon on regular. It had been impressive already, on June 6, at nearly 19 cents per gallon. Margin on average was in that neighborhood throughout May and part of April.

While margin is not "profit" and averages do not equate to an individual marketer's or retailer's condition, its general width and fluctuations give a valid overview of how gasoline retailing is faring. Chances are, street prices will drop moderately in coming days due to margin trimming, even if crude oil prices do not drop at all.

As always, regional and local prices and margins tell a far more dramatic story. There are some low, single-digit margins in the mix, where competitors will have to seek recovery. Generally, West Coast margins are the highest now; in Pacific Northwest metro markets, apparent retail margins were already about 48 to 52 cents per gallon two weeks ago while wholesale prices were dropping some 46 cents per gallon. In those markets, street prices fell about 40 to 46 cents per gallon over the two weeks, so margins improved another dime--for the moment.

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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