Gasoline Market Thumbs Nose at Crude

Seasonal factors keep prices in check—for now

CAMARILLO, Calif. -- The average retail price of regular grade gasoline has dropped 3.61 cents in the past two weeks, to $2.2533 per gallon. It is the first decline in 11 weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. Before this drop, the most recent pit was Aug. 5, after which the average price rose by nearly 14 cents.

Meanwhile, the top input to gasoline prices—crude oil prices—moved in the opposite direction. Gasoline does what crude dictates long term, but the gasoline market can exert short-term exceptions. Refiners have been paying more for crude for weeks now but have not yet fully passed through the price hikes, and this has cut into their gasoline margin. U.S. refining margin on gasoline is at one of its lowest points of the year.

Retail price was able to drop between Oct. 7 and Oct. 21 because of seasonally weakening gasoline demand, and the fact that in many markets, prices were on their way down anyway. Downward price correction came from the Southeast, where supply logistics normalized after the Colonial Pipeline breakage, and the Midwest, where gasoline output came back after major repairs at BP’s Whiting, Ind., refinery.

Behind the current retail gasoline price slippage, retailers regained margin as they were able to pocket, on average, some of the wholesale gasoline price reductions they got. Margin on regular grade sits at 19.68 cents per gallon (CPG), 2.86 cents better than on Oct. 7. Some of the rosiest margins are being earned in the Southeast and Midwest right now, and margins remain robust in much of the West Coast and Northwest. Areas on the low end include Salt Lake City, where margin still languishes below 6 CPG, as it did two weeks ago, and is in fact a fraction of a penny lower.

As crude oil continues to edge up since Oct. 7, refining margin is hurting worse while retail margin is hurting less.

The current pump price is now above its year-ago level by 1.5 cents, removing a long-standing discount that encouraged demand. One year ago, the retail price was discounted some 84 cents below what it was in late October 2014. Gasoline demand’s seasonal decline will suffer the usual impetus a few days from now from the loss of daylight saving time.

After that Nov. 6 event, motorists lose an hour of safer daylight driving. Even if refiners are able to push through earlier oil price hikes into their wholesale, gasoline demand seasonality will offer price resistance.

From here, the average retail price may change little until or unless the upcoming Organization of Petroleum Exporting Countries’ (OPEC) formal meeting results in a credible deal to withhold crude oil from the world market. This would send oil and gasoline prices up. The Saudi Arabian oil minister is quoted as saying that OPEC wants “to signal to the market” that it wants “to work down the inventories and we want investments to resume.” It has signaled that to the market, and that is all OPEC has done, so far.

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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