Lundberg: Margins, Retail Prices Rise

While Saudi output news trumped by Nigeria violence

CAMARILLO, Calif. -- The June 20 U.S. average retail price for regular-grade gasoline is $4.0972, up 9.87 cents per gallon from June 6, according to the most recentLundberg Survey of approximately 7,000 U.S. gas stations. The current price is $1.1011 above its year-ago level. Retail margin on regular gained nearly six cents overall, putting it that amount above normal (the June 6 level, and the annual levels of 2007, 2006 and 2005). Negative and very low retail margins evident on June 6 are gone. In some markets there are unusually [image-nocss] high margins, which won't last long in the face of consumer price resistance.
Refiner margin gained 13 cents compared with two weeks ago, but leaving it at one-third of its year-ago level and half its calendar 2007 average. Within the petroleum industry, many refiners around the world, certainly in the United States, are singularly bad off while producers have been raking it in and retailers in the main have been faring fair (or better).Although there was a reasonable chance that oil prices would slip in the near future due to international measures that emanated from the Jeddah meeting called by Saudi Arabia—especially that country's breaking ranks with OPEC and defying price hawk members like Iran and Venezuela by deciding to hike oil output further in July—further violence in Nigeria a few hours later prevented it, and oil prices rose.Saudi Arabia also emphasized its longer-term production expansion projects. Not as prominent in the press, but very powerful for world oil supply prospects, Iraq's production has exceeded 2 million barrels per day for the first time since 2003 and further hikes are expected.If crude prices were to decline significantly, then U.S. refiner margin could normalize, drawing remaining idled capacity back into gasoline production and enhancing supply. At a time when U.S. gasoline demand has been in retreat due to price, this would bring about peaking of pump prices and a down retail price trend.Oil prices, indeed, rose Monday on disappointment over Saudi Arabia's modest production increase and concerns that output from Nigeria will decline, according to a separate Associated Press report. Retail gasoline prices, meanwhile, inched lower overnight, but appear unlikely to change much as long as oil prices remain stuck in their recent trading range.Saudi Arabia said Sunday at the Jeddah meeting, a summit oil producing and consuming nations, that it would turn out more crude oil this year if the market needs it. The kingdom said it would add 200,000 barrels per day in July to a 300,000-bpd production increase it first announced in May, raising total daily output to 9.7 million barrels.But that pledge fell far short of U.S. hopes for a larger increase, AP said. The United States and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar."The Jeddah meeting became a non-event," Linda Rafield, senior oil analyst at Platts, the energy research arm of McGraw-Hill Cos., told the news agency "There was no surprise."But Saudi Arabia did promise to boost its long-term production capacity. "Obviously, the Saudis are concerned, and that could be a bearish factor," Andrew Lebow, senior vice president at MF Global LLC, told AP. But any longer-term production increases are years away, Rafield said."The oil summit really has not done much to temper oil pricing," Victor Shum, an energy analyst with Purvin & Gertz, told AP. "It was a modest output increase and hardly really compensates for the disruption out of Nigeria."Analysts think gasoline prices are unlikely to change much as long as oil prices remain stuck in their recent trading range between roughly $130 and $140 a barrel. Oil futures are unlikely to break out of that range without major news concerning supply and demand, or the dollar, analysts said. "There's a general uncertainty," Lebow said. "There are forces on both sides," aiming to push prices higher and lower.

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