Houthi Rebels, Straw on the Camel

Is the pump price crash ending?
gas station
Photograph: Shutterstock

The U.S. average retail price of regular grade gasoline dropped 5.75 cents per gallon (CPG) in the past two weeks, according to the most recent Lundberg Survey of U.S. fuel markets. It is now $3.2108, discounted a small 5.5 cents under its year-ago point.

The average pump price has now crashed a total of 77.58 cents during the past three months.

In those same 13 weeks, U.S. benchmark West Texas Intermediate (WTI) is down $16.47 per barrel—that’s 39.21 CPG, so much shallower a drop than has occurred in the final consumer price. Some of the difference is margin losses for the downstream portion of the oil industry.

The oil and gasoline markets barely flinched at the additional oil production cuts announced by OPEC at the end of November, and arguably have not blinked at the news that Angola will quit the organization, since its production has been limping. Not that Angola does not merit its own news pedestal, which Phil Flynn, analyst at the Price Futures Group, has given the African oil producer in a Dec. 20 poem.

But it is the Iran-backed Houthi attacks upon shipping in the Red Sea that are adding real dollars and cents to oil due to rerouting and which are adding a fresh oil supply risk element to the market. WTI for example rose from $71.23 per barrel to $74.22 by Dec. 18. Futures gasoline has tracked crude oil’s response, and in this instance, racks have been just as responsive as the NYMEX.

The Gulf Coast region’s average unbranded rack climbed 19.41 CPG in the past two weeks, to $2.0311. Per Lundberg’s wholesale Diary publishing buying prices for all classes of trade each day, the national jump in unbranded rack was smaller but still a notable 9.12 cents in two weeks. Anecdotally, we see retail price adjustments to the upside as retailers get hit with shrinking margins due to rack price hikes.

Nationally, retail margin was hit with another blow, this time a loss of 12.63 CPG. The Dec. 22 U.S. margin of 35.19 cents still carries the day but is by no means flush thanks to jumping costs.

With just some, not all, economic indicators suggesting a less painful time may be on the way for consumers, still the price “feels” high. If tax inside gasoline were to arrest more motorist attention, price would feel lower: The volume-weighted tax inside the retail price of gasoline, done right by Lundberg to include all taxes on the product taking volumes into account, is 61.69 CPG, extremely high compared to average retail margin on a gallon.

In that light, the retail price of gasoline in the United States is $2.5939.

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, California.

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