Big and Small Events Converging on Gasoline Prices

Has the pump price crash ended?
Photograph: Shutterstock

CAMARILLO, Calif. — The national average retail price of regular-grade gasoline is down 10.92 cents per gallon (CPG) to $2.7301, according to the most recent Lundberg survey of U.S. fuel markets. It is 23.61 cents below its recent peak seven weeks ago. And it is a drop of 21.99 cents from its year-ago point. There is more than enough gasoline supply to meet demand, even if seasonal and year-on-year demand strength is exceptional.

But several big and small events of last week suggest that the pump price decline is being arrested, at least for now. Crude-oil prices rose on the Federal Reserve interest-rate cut announcement, followed right away by worsened tensions between Iran and the U.S. And on June 21, the biggest refining complex on the East Coast suffered fires and explosions, spooking futures gasoline prices. The supply shortfall due to reduced operations at Philadelphia Energy Solutions may prove to be short-term, because regional inventories plus pulls from outside the area and imports of gasoline into New York Harbor can fill the gap. Whether higher crude-oil prices will be sustained cannot be known.

Meanwhile, ethanol price recovery is adding something to the retail price of finished product. And U.S. gasoline demand—strong with the driving season underway but also perhaps strong year on year, supported in part by the lower retail price vs. that of this time last year—would be another price support.

In addition, one type of retail gasoline price support that is very unlikely to be short-term is taxes: Several states are increasing gasoline and diesel taxes, some of them massively, and coming into effect July 1. So, many consumers will be paying more at the pump a week from now, assuming no awful oddity prevents retailers from passing the tax increases through. After July and into the fall, several more states will also boost fuel taxes. At the least, over the next several weeks, retail gasoline prices will be higher than they otherwise would have been due to the state tax increases.

Retail gasoline margin lost big in the past two weeks. It is now 22.97 cents nationally, down 10.49 CPG since June 7. The wholesale (weighted by class of trade) buying price slipped just 0.30 CPG in the same period. So nearly all of the price break at the pump was delivered courtesy of the nation's station operators. Retail margin on regular grade has zigged and zagged dramatically all year; on June 21, it happened to be close to what it was at the start of 2019. Meanwhile, retailers in some markets suffered a margin width of less than a nickel in our June 21 snapshot, and in many of them a width of less than a dime—not sustainable. A too-low retail gasoline margin is a very underappreciated factor in price prediction exercises.

However, overarching the several inputs to higher retail prices is the fact of more than sufficient supply of both crude oil and gasoline, so that a sharp price spike is not among the likely short-term scenarios.

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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