CAMARILLO, Calif. -- In the past two weeks, the U.S. average regular grade retail price rose 5.26 cents per gallon, to $3.3171. It beats the March 21 all-time high inflation-adjusted price by that nickel, according to the most recentLundberg Survey of approximately 7,000 U.S. gas stations.
The gasoline market, and its players that include many others apart from refiners, marketers and retailers, has decided that crude oil and ethanol are OK to be price determinants, but not profit margins. Or, that OPEC and the White House are [image-nocss] causing pump pain, while the U.S. gasoline industry is not. While those statements are of course invalid on their own, grains of truth huddle in them.
Refining margin on gasoline is down, 50-cents-per-gallon lower than its year-ago level according to Lundberg data, and year-to-date is less than half its calendar-year 2007 size. Retailing margin lost too in these two weeks, with several metro markets in the red on April 4 according to our calculations. Retailers, fortunately, have year to date about the same good margin on regular that they had in 2005, 2006 and 2007 (about 11 cents).
Short term, refiners and retailers have to gain margin unless one of two things happen: either crude oil prices plunge, cutting costs for refiners and wholesale gasoline prices for retailers, or demand growth has to resume handsomely. These aren't likely.
As Spring demand moves up along its normal seasonal curve, the building pressures to pass through higher costs will manifest themselves. Idled refining capacity needs margin incentive to come back, as do sluggish gasoline import levels, to satisfy the upcoming three-month Summer demand plateau.
Ethanol, taking more share of the gasoline market by federal mandate, is often underestimated as input factor by those hazarding a guess in gasoline price projection. More forced purchasing by refiners and marketers of the additive, whose prices have been zooming up of late, with the inclusion of this growing volume in Spring refining regs exacerbating rising processing costs, and giving the motorist fewer miles per gallon at higher prices, are all part of the Spring 2008 market.
As a refining industry leader said of ethanol last month at the annual meeting of the National Refining & Petrochemical Association (NPRA), "We don't make it, but we have to sell it." And they have to shoulder the cost, and pass it on, to consumers who may soon become more aware that they are getting short-changed in terms of miles per gallon.
A street price surge by June of 50 cents to about $3.82 nationally is within the realm of possibility, from ethanol-related rising costs and industry margin increases alone. As the anti-oil antics in hearings and other public forums increase along with price and seasonal gasoline demand, those in the hot seat—from dealers to major oil companies—will be hard pressed to explain the multiple ill effects of this tax-subsidized, energy-short, environmentally handicapped, logistics-cost-hiking corn derivative, to defend themselves against the witch hunts. As NPRA points out, U.S. ethanol has three market fixes: the fuel tax break, the sales mandate and the barrier against Brazilian competitors, courtesy of the federal government.
When refining margins recover, as they must, and retailers expand theirs if they can, negative scrutiny of the gasoline industry will intensify. The general public may learn more about the consequences of ethanol's role than ever, in 2008, if politicians and anti-petroleum advocates elicit such information from those they accuse of profiteering.
Click the Download Now button to view U.S. Average Retail Gasoline Price Chart for April 4, 2008 (showing the weighted price of all three grades of gasoline).
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