No Let-Up for Retail Margin

Oil, spring regs hit gasoline prices
gas prices
Photograph: Shutterstock

Retail gasoline prices jumped again in the past two weeks, this time a rise of 7.01 cents for regular grade to $3.6735, according to the most recent Lundberg Survey of U.S. fuel markets. But it is the steep trajectory over 13 weeks that tells the price story. In a little over three months, the average pump price has climbed 49.42 cents.

Currently, it is reasonable to expect more retail pump price hikes, a dime or possibly much more, in the near future.

In those same 13 weeks, with just one short lull early in the year, retail gasoline margin has been steadily shrinking, to the tune of 15.4 cents. It lost a further 1.86 cents in the latest two-week period. Margin on regular was a relatively rosy 38.74 cents per gallon (CPG) back on Jan. 5, a level by no means rare prior to that. After many losses, retail margin is now an emaciated 23.34 CPG.

Garnering just 23 pennies does not cover the bills, and can’t sustain today’s retail gasoline operation for long under today’s economic regime. For contrast, consider that tax inside the gasoline price, a weighted average of all applicable taxes nationally, is currently 62.08 CPG.

For the reason of retail margin deprivation alone, there is big pressure on retail price to rise from here. Newly higher crude oil prices paid by U.S. refiners were not entirely passed through into wholesale gasoline, so more pressure there. West Texas Intermediate’s rise during the two weeks was $6.28 per barrel, which is the equivalent of 14.95 cents, nearly twice as much as the wholesale price rise in the period, and more than double the rise at the retail pump.

To crude oil price’s existing risk premium built in we now have a more severe threat in the Middle East, with Iran threatening a direct attack upon Israel after Israel destroyed on of its consulates in Syria. It has taken the Iran-related risk premium from its proxies Hamas, Hezbollah and Houthis into new territory and added to oil prices.

Also during these two weeks, it was clear that OPEC produced fewer barrels last month although no policy was changed. And both Mexico and South Sudan cut oil production for reasons of their own (Mexico to feed its own refineries with oil in order to reduce its dependence on imports of refined products, and South Sudan due to a pipeline blockage).

Additionally Ukraine’s attacks on Russian refineries, knocking out significant production until June, added to the murky picture of a world heading into petroleum supply deficit. The Ukraine attacks on several refineries in Russia put it into both real and risked supply negatives.

At the same time, indicators of stronger world oil demand than had been expected are revealed in recent data from both China and the United States.

The U.S. market is entering the swing of spring-summer blends, already in effect in Southern California (and wholesale prices evidence this), and refiners are readying nation wide to supply higher-cost product.

U.S. motorists will increasingly be paying for lower vapor pressure gasoline and for Middle East oil supply threats, among other causes of stronger oil prices.

How it is in two cities, April 6: In the San Francisco Bay Area, with the highest retail price among huge markets, margin cratered 14.48 cents to 34.63. That may sound OK in some metro areas, but here it is not. As recently as Feb. 16, margin was 58.39, and below its norm. We find tax alone (all types combined) is 97.17 CPG in this metro area.

In Philadelphia, retail margin skinnied by 2.71 cents during the March 22-April 5 period, to a severely narrow 11.86 CPG. Although the market is currently in about the middle in terms of metro area retail gasoline prices, tax inside retail price compares at the high end, with a fat 77.50.

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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