CAMARILLO, Calif. — This is the time of year for U.S. gasoline demand to come out of its hibernation, released by milder weather and longer daylight hours.
Recently, better jobs growth ought to be adding to the upswing in gasoline consumption. Price should be strengthening too, putting crude-oil price aside, on that same seasonal gasoline demand curve, supported a bit by the season's ushering in of higher refining costs for spring and summer smog-preventive gasoline formulae.
Not this time. A global crude-oil price crash has occurred as economies constrict in response to the coronavirus. At the same time, two producing nations had fits over a failed international pact to reduce oil output to shore up weak oil prices, resulting in price cutting and vows to increase production. In the case of Saudi Arabia, production above its sustainable total has been promised. The oil price crash has been working its way into refined products.
From Feb. 21 to March 13, the U.S. average retail regular-grade price declined 14.53 cents per gallon (CPG) to $2.3869, according to the most recent Lundberg Survey of U.S. fuel markets. The national average diesel fuel price dropped 9.65 cents to $2.8803.
Some other time, those would be impressive price cuts. Under current conditions, these down corrections are as if nothing occurred, where demand is concerned. Transportation firms and independent truckers will not be partying about a dime. Commercial and individual motorists will not be gunning their engines and bursting out of their parking spots for the freedom of spring. Even price cuts of many times those amounts would not beckon consumers to normal behavior right now.
In the United States, a gasoline glut had already prevailed for many weeks, so the effect on gasoline is magnified. In this column, in early December, we noted that the Organization of the Petroleum Exporting Countries (OPEC) was cutting back but U.S. refiners weren't. Later that month, we reported that the U.S. was awash with gasoline and forlorn refiners were chasing sales during a low-demand month. In mid-January, we found U.S. oil prices dropping despite dramatic Middle East headlines and predicted lower pump prices; later that month, we noted that world oil demand was under threat from the coronavirus outbreak while record-high gasoline stocks were pulling prices down. In early February, we found that the confluence of factors including Russia's disinterest in an OPEC production agreement would prevent any near-term pump price spike. Late February brought no retail gasoline price change from two weeks prior and we stated that global oil demand would dominate the U.S. pump price direction.
At this writing, about 39 states are in declared emergency, with 26 million students reported as out of school. Many government and private organizations have curtailed or ceased activity, some store shelves are empty of staples and some consumers are in panic mode, all destroying petroleum demand.
From here in the near term, a great acceleration of gasoline price cuts is all but assured. As the weighted (all classes of trade) national wholesale price of regular grade plummeted just over 62 CPG in the past three weeks, retailers have momentarily, on average, a bit of a gasoline margin windfall, which unfortunately so many will not long be able to keep. That gasoline demand is beating a hasty retreat will guarantee tough times for retailers. The pain will crawl up and down the supply chain and also torment the country's distributors, refiners and our oil producers—even if crude-oil prices should cease crashing.
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Trilby Lundberg is publisher of the Lundberg Survey of U.S. fuel markets.