More Downstream Margin Erosion

Pump price drops more than 7 cents as supply outpaces demand

CAMARILLO, Calif. -- Regular-grade gasoline now costs $2.2202 per gallon at the pump nationally, down 7.22 cents from two weeks ago. Since its recent peak in early June, the price has fallen more than 15 cents, and the slide has accelerated over the past 15 weeks, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

gasoline nozzle

About a third of the latest drop came from crude. About two-thirds came from eroded gasoline margin in both the refining and retailing sectors. Refiners cut wholesale gasoline prices more than their oil buying prices had dropped, and retailers cut street prices more than their wholesale prices had dropped, on average.

The cause: Supply is stronger than demand, for both crude and refined product. U.S. gasoline demand continues to expand but gasoline supply is barreling merrily out into the market. A discount of 60 cents under the average retail price of a year ago encourages motorists.

Meanwhile, American supply is so strong that foreign consumers, some of whom are served by less-robust refining industries, are benefiting as well via gasoline imports from the United States.

Neither U.S. refiners nor retailers are suffering acutely low gasoline margins. In particular, retailers, after losing another 3 cents of margin on regular grade since July 8, are operating with a 22.75-cent delta on July 22—not too shabby, historically. Business and regulatory costs continue their upward creep, and of late the long list of “no-return” items includes the rising cost of ethanol-sales-mandate compliance that are embedded in wholesale and retail prices.

As always, there is great variety in conditions around the nation. The average pump price in California dropped 8.5 cents per gallon over two weeks and sits a full $1 per gallon below what it was a year ago. The weighted average wholesale gasoline price paid in the San Francisco Bay area is a bare 2 cents below the average street price in Charleston, S.C. And the margin on regular grade in Charleston was about a fourth of the margin in San Francisco, momentarily at least, on July 22.

From here, some further slippage in the national average pump price is more likely than not, unless crude-oil prices embark on a significant and lasting climb, or unless downstream margins become severely pinched.

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 CSPDailyNews.

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