CAMARILLO, Calif. — The gasoline market has taken on its common summer price trajectory as rising prices have now given way to falling prices. This is thanks in part to refining operations accommodating the seasonal demand curve, as they always do.
With planned plant maintenance and repairs heavy during late winter and early spring, the refining sector preps for peak gasoline consumption months. The pre-summer price run-up, made sharper by the higher costs of lowering Reid vapor pressure maximums per federal regulations, is visible most years unless it is obfuscated by what crude-oil prices are doing. And most years, this is followed by a major retreat of gasoline prices when capacities are brought back in line, unless crude oil says otherwise.
The two-phase phenomenon was accentuated this year because oil prices were rising while gasoline supply was shrinking, and because several of the refinery work projects were unplanned and/or of longer duration.
With tight gasoline supply having coincided with higher crude-oil prices in early spring, wholesale and retail gasoline prices surged. At retail, the U.S. average regular-grade price raced 65.6 cents per gallon (CPG) higher from Jan. 11 to May 3, according to the most recent Lundberg survey of U.S. fuel markets. Then it flipped: Lower crude-oil prices plus a gasoline supply comeback, a bit later in the year than usual, have now exerted down price pressure. This is being abetted by woefully weak gasoline demand.
The national pump price is 12.69 cents lower since the May 3 peak. More price cutting is likely.
As to retail gasoline margin gain, it has been a wonderful 14.59 cents since May 17. The national average June 7 margin may seem giddy-making, perched at 33.46 cents, but that terrible one thin dime during the month of March is not forgotten and is eating into year-to-date business profits. Chances are strong that retailers, and refiners too for that matter, will see gasoline margin shrinkage in the near future.
Gasoline stocks are brimming and the refining capacity use rate is about to rise above the current 91.8%. Meanwhile, demand is not yet able to step up to exploit. Gasoline demand weakness, due to months of prices shooting higher, flooding in several states and poor employment growth, is a price depressor. The retail price discount of 17.44 CPG under regular grade's price of a year ago encourages demand but not enough to offset the big negatives.
Crude-oil prices retook some ground in latest days but don't appear poised to shoot up. They are down more than 20 CPG equivalent since May 17. Unless gasoline supply should face a crisis, it would take an important crude-oil price rise to cause the retail price decline, just five weeks old, to cease. Soon, refiners and retailers will likely give up some of their margins and those losses will be consumers' gains.
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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