The Good News: Demand Growth Awakens

Retailers' gasoline margins shrink as pump prices edge up
Photograph: Shutterstock

CAMARILLO, Calif. -- The national average price of regular-grade gasoline at the pump rose a scant 1.18 cents per gallon (CPG) in the past two weeks to $2.3391, according to the most recent Lundberg Survey of U.S. fuel markets.

Over the past four weeks, it's up 2.89 CPG.

This does not resemble a spike in the making, and in fact the price is still about 61 cents below what it was in early October, when the long price crash began.

And the nearly 3-CPG rise during the past month is not enough to shut down an awakening of gasoline demand that seems to be taking place. Comparatively very low retail prices, recent jobs growth, the fact that we have emerged from the demand trough month of January and the current discount of 32 CPG under the year-ago point are telling gasoline demand it is OK to come out of hibernation.

Meanwhile, downstream gasoline margins are not delighted: Retailers lost 4.35 CPG of regular-grade margin in the past two weeks, and the current delta of 19.7 cents is the lowest since Oct. 5, when it was 18.51 cents. Gasoline retailing today requires a far wider margin than it did just a few short years ago due to rising costs, and this trend is continuing. For their part, refiners in these two weeks did recover some gasoline margin for a change, about 6 CPG; however, it is a drop in the bucket considering serious deterioration, and it remains notably depressed. Refining margin on gasoline during full-year 2018 was far better, but it was inferior to margin during 2017, 2016 and 2015.

Both sectors within the U.S. downstream are under pressure to recover gasoline margin. That pressure, plus better demand prospects after January, and refiners cutting back runs on average as several maintenance projects are taking place, has upped wholesale gasoline prices of late. Some retailers have passed through to the street handily, while others are struggling. On Feb. 8, regular-grade retail gasoline margin was single-digit in Houston; Jackson, Miss.; Baton Rouge, La.; and Norfolk, Va. It is narrower than 15 CPG in those four plus many others, including Tulsa, Okla.; Denver; Philadelphia; Baltimore; and Albuquerque, N.M.

Crude-oil prices, the king of determinants of retail gasoline price and direction, do not seem poised to force retail gasoline prices to surge. For example, near-month futures prices of the U.S. benchmark grade West Texas Intermediate remain range-bound, with highest and lowest closing prices not much greater than $3 per barrel apart for the past four weeks. In those terms, oil price volatility has been greatly reduced from what it was in late 2018 and early 2019.

But upward price pressure within the U.S. gasoline market exists and will probably cause a few more pennies of increase in the average retail price sometime soon.

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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