The April 7 near-month West Texas Intermediate (WTI) futures price closed $11.44 per barrel higher at $80.70 than it was two weeks prior, translating to a big cents-per-gallon (CPG) bump of 27.23.
Refiners passed through oil price hikes at a lag, with the Lundberg-weighted U.S. wholesale gasoline price up 21 cents.
Retailers took that price hike and minimized it, with the average street price up 13.64 cents on regular grade, according to the most recent Lundberg Survey of U.S. fuel markets. But during the same two weeks, crude oil prices strengthened. From here, further pump price hikes, big ones, are likely if current conditions hold.
Both U.S. downstream sectors lost, especially retailers. The national average margin on regular grade is now just 21.28 CPG, a loss of 8.55 cents. Retail gasoline margin has been shrinking for nine weeks straight, a total decline of 19.01 cents. Margin has been slashed by nearly one-half since Feb. 3.
U.S. gasoline, and crude oil for that matter, is in tight supply historically. Now the spring/summer demand curve has started its ascent, with the added seasonal formulaic costs already entering the product pool. Demand’s climb is supported by a current retail price discount of nearly 60 CPG versus a year ago. It seems able to absorb some price hikes without recoiling, although it will be weaker than it would have been if not for high inflation and the lackluster employment picture.
Refiners are churning it out well for the season and more capacity will be active as maintenance projects are completed including the important ExxonMobil expansion of its Beaumont, Texas, refinery.
An oil price cut would negate all that, but absent a broad and far deeper banking crisis around the world, oil prices are likely to keep flexing their muscles. Even price caps and sanctions on Russian petroleum are not hurting oil. For example, Russia’s customer India exports Russian oil in the form of refined products at strong prices.
In the United States, the refilling of the Strategic Petroleum Reserve (SPR) is so far a no-show.
As the rest of the crude oil price rise makes its way to the street, pressure on margin will mean pressure on prices to motorists. In some markets margin pressure is acute, on April 7 actually in the red in Albuquerque, New Mexico, Cheyenne, Wyoming, and St. Louis.
Retail margin in Denver has been eventful: During product shortage due to refining problems, margin was stupendous from mid-February through mid-March, but on too-few gallons. Margin in pennies looked good, but margin dollars were ugly. Between March 24 and April 7, Denver’s average retail price dropped like a stone, while at the same time wholesale prices surged thanks to OPEC’s production cut. So Denver’s average margin was slashed by more than 48 CPG to just 26.31 cents.
Click here for previous Lundberg Survey reports in CSP Daily News.
Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets. Lundberg Survey Inc. is based in Camarillo, Calif.