Gasoline Retailers Between 'Rock and a Hard Place'

Margin is squeezed and demand is soft

CAMARILLO, Calif. -- Retail margin is squeezed tight right now, but without a wholesale price break, it would be tough to raise pump prices to eke out a recovery, because demand is squeamish.

The national average retail gasoline price dropped 3.15 cents per gallon (CPG) during the July 13-27 period, following the price of the raw resource down, according to the most recent Lundberg Survey of U.S. fuel markets. A proxy for global light crude-oil grades dropped the equivalent of 4 CPG in that same time span.

Oil price gyration is ceaseless thanks to fluid and opposing changes or expected changes in supply and demand, and recently the oil price range has been rather narrow. An example is increased output by Saudi Arabia and the United States versus uncertainty about Iran output due to the United States’ reimposing of economic sanctions. This year, oil prices have generally been high enough to encourage production and low enough to encourage demand. World demand and production both continue to be strong.

U.S. retail gasoline margin had for several weeks been about 20-25 CPG on regular grade, until now: Since July 13, margin has been slashed by more than a dime. The low July 27 average of 15.3 CPG reflects higher wholesale gasoline prices, most of it hitting on that date. For example, the Lundberg average jobber-supplied dealer buying price rose 3 cents nationally and rose a nickel in the Midwest, since July 26. The U.S. average unbranded rack on July 27 was 214.82 cents and branded was 222.54; the former is up 5.4 cents since July 13.

Assuming no significant wholesale gasoline price slippage very soon, retailers will be stuck, hard-pressed to recover margin because demand is soft. The recent impressive U.S. gross domestic product growth of 4.1% notwithstanding, gasoline demand growth appears stymied at the moment thanks in part to lackluster jobs growth. And the retail price premium of 59 cents over one year ago is not helping.

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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