Oil Has Reversed the Pump Price Direction

Retail gasoline margin still shrinking
Photograph: Shutterstock

CAMARILLO, Calif. — Crude oil prices have been strengthening on hope in recent weeks, as imminently available COVID-19 vaccines imply petroleum demand recovery. They also rose with weakening of the U.S. dollar, and a speck of support came from OPEC's decision to proceed with a reduction of its production cut beginning in January.

Oil's rise in mid-November did not faze U.S. gasoline prices much; in fact, the national average retail price dipped. But now, with another 10 cents-per-gallon (CPG) equivalent in benchmark grades' near month prices, some of oil's higher price did get passed through—like pulling teeth, though, because gasoline demand is so feeble.

The Dec. 4 national average retail price of regular grade increased 4.23 CPG in the past two weeks after sliding down a total 8.28 cents during the prior 11 weeks, putting the new price at $2.2215, according to the most recent Lundberg Survey of U.S. fuel markets.

Unless a crude oil price reversal should occur, gasoline prices will likely continue rising, but possibly lagging as it has been. The current pump price is some 43 CPG under its year-ago point, but the discount pales against demand damage imposed by unemployment and degrees of economic lockdown. The Lundberg projection of fourth-quarter gasoline demand is a pathetic 10% below third-quarter 2019, nearly as sickly as was 2020's third quarter. So oil prices can exhibit all the recovery hopes they want, but the U.S. gasoline market can't jump to its baton with gusto.

Since Nov. 20, the weighted U.S. wholesale price of regular grade gasoline increased 5.82 CPG. Retail margin is 1.62 cents smaller at 25.97 cents.

In the past month, refiners have been able to pass only one-third of their rising feedstock buying prices into their wholesale gasoline prices, and with light product stocks, are still glutted and demand in the doldrums, refiner margin on gasoline has been clobbered. As for retail margin, although it is not as acutely damaged as refiner gasoline margin, it is 3.29 CPG skinnier than it was in late October—and may be forced down further if hard-pressed refiners hit a wall and impose big gasoline rack price hikes.

  • 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, Calif.

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