Downstream Gasoline Margins Faring Well

Pump price slips—more to come?
Photograph: Shutterstock

CAMARILLO, Calif. —The Organization of the Petroleum Exporting Countries (OPEC) didn't prevent it, and Tropical Storm Barry didn't either. An important regional refinery kicked the dust, and that didn't do it. Neither did July demand, always one of the strongest of all. Crude oil and gasoline prices both fell in the past two weeks. Gasoline prices may well slip further in the short term.

OPEC's extension of its production reduction announced last December and Tropical Storm Barry having shut in more than half of U.S. Gulf Coast oil production did not prevent a significant oil price slide. Oil prices declined despite the escalated tension between Iran and the U.S.

Lower crude oil prices, due in part to continued strong U.S. shale oil output and a strengthened dollar, allowed for a 2.38-cents-per-gallon (CPG) decline in the U.S. average regular-grade retail price in the two weeks ending July 26 to $2.8083, according to the most recent Lundberg survey of U.S. fuel markets. 

It is another directional reversal. During the prior three weeks gasoline jumped just more than a dime, and in the prior seven weeks the average price crashed nearly 24 cents. Gasoline prices have gyrated with crude, as they usually do and long term always do.

Since July 12, refining margin on gasoline took a short step backwards but remains in very healthy territory vis a vis margin in recent years. The sector's capacity use rate dropped with the hobbling of the Philadelphia Energy Solutions (PES) refinery in Pennsylvania late last month. The country's gasoline demand has weakened. Gasoline supply is more than sufficient and comparatively superior refining margin indicates it should stay flush.

As for retailers, gasoline margin has bounced back nicely, regaining 10.69 CPG to an average of 25.01 CPG on regular grade July 26. The rebound is more than half of the five-week loss retailers suffered during the June 7-July 12 period that totaled 19.13 CPG.

Rough Albuquerque

In Albuquerque, N.M., since July 12, the weighted average wholesale price of regular grade dropped 12.83 CPG to $1.9662. The average retail price in this market dropped less than that in the same period—just 6.61 cents. So average margin bobbed up 6.22 CPG. Unfortunately, that puts the July 26 margin at a dismal and unsustainable 3.27 CPG. Albuquerque and several other low-margin markets would cheer further wholesale price cuts from suppliers to allow for further recovery. Considering some possible further pass-through of lower oil buying prices by refiners and the refiners' own attractive gasoline margins, help may be on the way.

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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