CAMARILLO, Calif. -- According to Lundberg Survey calculations, crude surpassed its all-time historical high price on October 29. This was a week ago, when near-month WTI closed at $93.53. It beat the March 1981 price of $93.03, in today's dollars, by 50 cents. There are many erroneous press reports that casually put the historical date and the all-time high price all over the place, without explanation of what data were used.
We used the September Consumer Price Index (October is not available [image-nocss] for several more days), and an adjusted historical price (there was no WTI near-month back then, and WTI is the only crude price that news media routinely quote, sorealistic differential must be applied).
Since October 29, WTI crawled up another $2.40 per barrel, to $95.93 on November 2, the day of Lundberg Survey's national retail price update. As of November 2, crude has beaten its March 1981 all-time high by $2.90 per barrel.
Whether or not the press or government sources properly told the American public last week what crude did (they didn't), the crude price is finally, 26 years later, more expensive than it ever was. But, this does not matter terribly much. The main reason it doesn't matter much is that oil represents just 2.77% of world Gross Domestic Product (GDP), whereas it was a much bigger hunk, 5.42%, back in 1981.
About retail gasoline: The U.S. average regular grade retail gasoline price moved up another 16.33 cents in the past two weeks, to $2.9626, according to the firm's most recent survey of approximately 7,000 U.S. gas stations. It sits about 22 cents per gallon under the May 18 peak price, and 78 cents above the year ago level.
Gee whiz. Yes, regular gasoline is nearly at the $3 per gallon level, as someone reported as if it had been included in our interview. And yes, $96 is not very far under $100, a number widely picked by trade and general press as a price already in effect (not) and very meaningful (not), and yes, another $4 per barrel now would affect gasoline prices.
But missing from these observations is what the industry is experiencing and why. More important right now are low margins and flat gasoline demand. Refiner margins on gasoline are roughly one-seventh of what they were in May. Retailers' regular grade margin is just half of what it was some weeks ago. During the past two weeks, when the retail price climbed about 16 cents on average, both refiners and retailers saw even more margin erosion. Crude oil (near month WTI) moved up about one penny more than retail gasoline did, during the same two weeks.
What we have here is retail gasoline appearing to catch up with crude, while refiner and retailer margins arestill further behind. If retail margin recovered just a nickel and refiner margin crawled back just a dime, that's 15-cents-per-gallon worth of upward pressure at the pump. It has to come sometime soon, as refiners already cut back on runs do to poor economics and in nearly half of U.S. markets retailers are making less than 5 cents per gallon. Flat gasoline demand is a big reason that margins are poor, as competitors chase sales with low priceslower than they would be if not for slashed margins. Marketers would rather service their customers at the lowest price they can, for as long as they can. But time is running out.
Crude may rise or fall from here, but if it stays hovering near $96 bbl., retail gasoline prices will surge anyway. Guess who'll take the blame? Instead of receiving flowers for their extended sacrifices, refiners and retailers will be splattered with questions that are either incoherent or asked in bad faith.
Per our prior column, margin is politically tough for competitors to address. I suggest the November 2 Lundberg benchmarks of retail regular grade margin at 6.59 cents per gallon and refiner gasoline margin at 16.40 cents per gallon. A frank and clear explanation of low margin and flat demand will serve both consumer and industry interests, especially now. Our gasoline does not leap out of crude and move through the classes of trade to the street all by itself.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.