A Glut of Everything Except Demand

Gasoline price plunge continues
Photographs: Shutterstock

CAMARILLO, Calif. — Ninety-nine cents per gallon (CPG) is the discount that American motorists now get at the retail gasoline pump on average, vs. a year ago. The current price is $1.9271, according to the most recent Lundberg Survey of U.S. fuel markets. It was $2.9118 on April 19 of last year.

The average retail price has fallen 8.70 cents in the past two weeks and crashed 61 cents in the past nine, and since mid-October 2019 it has declined, with very few lulls, a total of 80 CPG.

Until mere weeks ago, the cause of the retail price-cutting was oversupply of gasoline from crude oil build and robust U.S. refinery production use of capacity. Then COVID-19 pandemic-related demand destruction, especially of gasoline, hit the market far more strongly than had oversupply alone.

Lundberg Survey estimates that during the first three months of 2020, gasoline demand contracted 3% compared to first-quarter 2019, and will be punctured an astounding 35% during the second quarter.

Meanwhile, the awesome glut of crude oil continues unabated, with U.S. stocks likely to fill to the brim within two months' time. The world once again turned its back on the Organization of the Petroleum Exporting Countries (OPEC), after its announcement two weeks ago that its members and many collaborating producing nations would now withhold about 10 million barrels per day. Oil prices continued heading down with that news, considering the imbalance of oil supply and demand is about three times that amount. (In the case of West Texas Intermediate, it even turned negative, costing sellers $37 per barrel for a moment in history, according to the NYMEX closing May contract April 20.)

The current predicament of U.S. refiners is disastrous, with extreme bargain crude-oil prices but gasoline demand gone missing. Over the years, various oil industry accusers have claimed that when refining capacity was reduced, for example, within a region, it reflected greed on the part of refiners so that refined product prices would have to jump thanks to shortage of supply. This wrongheaded thinking missed the truth of ever-present fierce competition and the straightforward drive to profit from better sales if some competitors suffered output interruptions. The fact that currently just 67.6% of the nation's refining capacity is being utilized measures the desperation of refiners. For many months prior to the bottom falling out of U.S. gasoline demand, gasoline glut had prevailed but capacity use did not cave. As recently as mid-February, the capacity utilization rate was a high 89.4%.

Refining capacity usage probably must drop to far sadder levels since gasoline demand will not recover soon. Mid-April 2020 saw another all-time record high for U.S. gasoline stocks. Even though wholesale gasoline prices at the racks and most dealer tankwagon prices strengthened in recent days, that may prove a very short-term trend. The double gluts of crude oil and gasoline are a fast-moving tidal wave swamping producers and refiners, while product marketers and retailers are in the sorry position of passing through fuel price cuts with zero hope it will inspire splendid, or even respectable, throughputs.

Click here for previous Lundberg Survey reports in CSP Daily News.

Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets.


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