Margin Recovery At Last, But Just 3 Cents

Pump price up another 12 cents in past 2 weeks
Photograph: Shutterstock

CAMARILLO, Calif. — Nationally, the retail price of regular-grade gasoline is $2.7840, according to the most recent Lundberg Survey of U.S. fuel markets. The increase since March 22: 12.16 cents, less extreme than the 16-cent jump of the prior two-week period, but a whopper of a load on consumers and on retailers in need of gasoline margin restoration.

It has been a huge 47.47 cent per gallon (CPG) rise in the past three months.

The current pump price is nearly a nickel above its year-ago point. For perspective, it is above the year-ago level of the past four years—but it is deeply below, 82 cents below, what it was in 2014 at this time of year.

Stronger crude-oil prices account for about two-thirds of these two weeks' bump at the pump, while the rest came from tighter gasoline supply and the continued rollout of costlier summer blend formulas.

Several refineries have idled capacity for planned and unplanned maintenance ahead of the grand summer gasoline demand push, and the overall use rate has dropped to 86.5%. Although some observers point to lower capacity use as designed for profit maximization, refiners pine for project completion to chase sales. As both the current work projects and rollout of lower-vapor-pressure gasoline are completed, upward gasoline price pressure should plummet.

If crude-oil price increases cease, this would spell the end of the retail gasoline price rise and significant price cutting would likely ensue.

The oil futures market seems to see prices moderating.

As we said in this column two weeks ago, retailers' gasoline margin has been ridiculously low and losses had to cease if the country is to have a sufficient number of open stations. Now, finally, after eight weeks of shrinkage, it has widened—but the recovery is just 3.07 CPG since March 22, putting regular-grade margin at a mere 13.19 CPG.

This is nowhere near enough for retailers' health. It is a hard uphill charge for retail gasoline margin at a time of elevated street prices, demand gasping for breath thanks to flooding in many markets, and jobs growth that is mediocre at best. And the retail price premium over last year's price, although so small, does not help.

There are some markets in negative gasoline-margin territory, several where retailers are garnering less than a nickel, many where it is less than a dime, and others far higher but that are insufficient for retailer survival due to local economics. In the Los Angeles gasoline market, where spot product jumped more than 36 CPG and racks quickly jumped skyward in the past week alone, conditions are serious.

With Los Angeles having the highest retail price among major cities, just under $3.75 for regular, average margin was an ugly 16.75 CPG on April 5. Even Seattle, often the highest retail margin in the country, is laboring under a mere 29 CPG for all fixed and variable cost of doing business. In these locations, supply is curtailed due to refinery issues while costs remain notoriously high.

When gasoline prices do hit a ceiling and begin to decline, that decline will have to be slower than it otherwise would be if retail margin were not so painfully squeezed.

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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