CAMARILLO, Calif. — Both sectors of the downstream half of the U.S. petroleum industry—refiners and retailers—are in tough straits. Producers, including U.S. shale oil companies, have had some improvements in economics, but not enough to celebrate.
Oil prices have been strengthening for several weeks, mostly on the expectation that virus vaccines will be distributed and lockdowns lifted, unleashing the economy and petroleum demand and therefore prices. Oil price hikes are also coming from the heavy waves of government money printing. During October and most of November, the oil price hikes were not visible on the street. Pump prices fell through Nov. 20.
Refiners had been partially passing through oil price hikes into wholesale gasoline but the passthough was insufficient, which narrowed their gasoline margins in the extreme. It became too much for them—even with capacity reductions from partial and complete facilities shutdowns—so they have now been transferring some of their oil price pain into wholesale gasoline prices to their accounts in greater earnest. Even with the resultant gasoline margin improvement we have just seen, right now their margin compares very poorly with any full year margin of the past decade.
Meanwhile, retail gasoline margin has been slipping for nine weeks, nearly 11 cents skinnier since late October. The last hit was a biting 7.31 cents-per-gallon (CPG) decline, to 18.66 CPG on Dec. 18.
Contrary to the zombie-like myth that petroleum refiners and gas station operators love to hike price, they love to refrain from increases and they love to cut price. They are born to move product and chase sales—until, that is, they can't take it anymore and must raise price even if it would act to hurt sales at a time of dismal demand.
Gasoline-using motorists are paying 7.98 cents more in the past four weeks, according to the most recent Lundberg Survey of U.S. fuel markets. Retail diesel fuel prices, which ripple through the economy even more widely, are up 10.54 cents over the past six weeks, with the metro area retail price now averaging $2.58 a gallon. Gasoline and diesel motorists are the fundamental reason for being for the industry. The industry is loathe to hurt them.
- Click here for previous Lundberg Survey reports in CSP Daily News.
Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets. Lundberg Survey Inc. is based in Camarillo, Calif.