February a Bridge of Fuel Seasons

Pump prices jump, but may now rest

CAMARILLO, Calif. -- February is a bridge period. It leads to coming higher-gasoline-demand periods, to the ramp-up of refining capacity after current maintenance projects are finished, and to regulation-driven cost hikes affecting wholesale gasoline, mostly in April and May.

For now, regular-grade gasoline costs $2.6547 on the street, 34.13 cents more than it did one year ago, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. There has been a 7.24 cent-per-gallon (CPG) retail price hike during the three-week period from Jan. 19 to Feb. 9, and a total rise of more than 17 cents since mid-December, driven by higher oil prices. Are further retail price hikes on the way?

February is within the low-gasoline-demand season. Demand gets a wake-up call when daylight saving time comes calling before mid-March. February is also a refinery turnaround month as refiners retool to maximize spring and summer gasoline supply. And in the case of the country's earliest anti-smog reformulation deadline of March 1 for refiners supplying Southern California, February is also a bridge month into higher cost within gasoline. April 1 is the country's first retail-level low-vapor-pressure deadline, affecting just a portion of Southern California. The deadlines fan out with varying pounds-per-square-inch maximums around the country, with most of the nation's refiners hit with the higher costs by May 1 and motorists hit by June 1.

But oil prices trump all downstream inputs to retail price by their sheer weight, usually well more than 50% of the retail-gasoline-price pie. And lately, higher oil prices have been hot in news headlines. However, they have been receding in the past few days.

In the case of the U.S. benchmark grade West Texas Intermediate (WTI), the near-month futures price is about a dime per gallon equivalent lower than it was three weeks ago. In the same period, wholesale gasoline prices slipped a few cents as refiners passed through their oil price breaks to marketers and retailers, after taking a little bit of gasoline margin recovery for themselves. For their part, retailers getting the wholesale gasoline price cuts swelled their gasoline margins wonderfully, offsetting most of the losses they had suffered during prior weeks. So retail price did rise despite crude-oil and wholesale gasoline price cutting, due largely to retailers having had to eke out margin recovery.

But there is a good chance that pump price hikes have been spent, for now. If oil prices stand pat, this may well be it for the street price hikes. In fact, retail prices are declining in various markets, including several in the Midwest.

To what degree retail price-cutting spreads from here will also depend in part on the return of refining capacities as maintenance projects are completed. Even in Southern California, on the eve of specs for spring blend, and where refinery turnarounds thus must be timed with that compliance in mind, gasoline prices have weakened. The Los Angeles spot price jumped 21 cents during the week Jan. 19-26, but thereafter crashed down nearly 35 cents. California's average jobber-supplied price to dealers dropped by some 13 cents in the past week alone, as has the average branded rack. The unbranded rack average in the state plummeted 17 cents in the past week.

If crude-oil prices stand pat, this may well be it nationally for street price hikes—until or unless a handicapped refinery output from extended maintenance work should meet with robust spring gasoline demand.

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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