CAMARILLO, Calif. -- The October 24 average retail regular grade price of gasoline is $2.7785 per gallon. It is down 52.94 cents per gallon from two weeks ago. This completely demolishes the prior record price drop, 35.03 cents, itself an incredible crash, between September 26 and October 10, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations. The new price of just under $2.78 is 88 cents lower than one month ago. It is a drop of $1.33 per gallon in less than four months, from the July 11 all-time [image-nocss] peak at $4.1124.
This never-before-seen depth and speed of price cutting comes from the world crude oil price plunge, and from U.S. gasoline demand shrinkage—worsened of late by weaker economic conditions. If no big rise in crude oil price is assumed (Organization of Petroleum Exporting Countries [OPEC] pledges to cut production notwithstanding), probably the retail price will continue falling, but at a much slower pace.
Since the 10th of this month, wholesale gasoline price reductions continued at a frenetic pace, following crude down and in response to restored power in Hurricane Ike-affected areas, and retailer passthrough of those cuts is still catching up. In Atlanta, the October 24 average retail price of regular is $2.57 per gallon, down 102 cents from two weeks ago. Birmingham fell 80 cents, Charleston, S.C., fell 74 cents, Norfolk pulled back 73 cents and so on.
Retail margin on regular sits at about 34 cents per gallon, having shrunk less than a cent from its level of two weeks ago. Behind that average, it ranges from negative or single digit in a few locations to above 60 cents in several others. These conditions are fleeting. Price volatility became a common term a year ago among those who do not price gasoline in their business, such as government observers; but retail margin volatility remains an unappreciated fact of life, unfortunately for retailers under the official microscope during an anti-"gouging" craze. Hour by hour, retailers are racing to pass through wholesale price cuts to motorists as quickly and deeply as they can afford.
The laws of gravity and supply and demand are alive and well: The petroleum price crash wrought by demand's response to high price will be followed by a retail margin crash. OPEC didn't enjoy its equivalent of a margin correction, and warns that consumers will suffer from shortage of supply in future if oil prices aren't as high as whatever OPEC voices call "fair" or "reasonable." The U.S. retail sector can sympathize—very little.
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