Apparently, oil prices now do their continuous gyrating within an approximate range of $80-$90 per barrel. It was not long ago that the range was $70-$80. Since late June, West Texas Intermediate (WTI) has climbed about 20 bucks. The famous reason, but not the only one, is the output cuts by Saudi Arabia and Russia.
During the past two weeks, WTI gained the equivalent of 6 cents per gallon, to $90.03 per barrel on Sept. 22, according to the most recent Lundberg Survey of U.S. fuel markets. It reached a futures closing price of $91.48 on Sept. 8.
In the same two weeks, the national average retail price of regular-grade gasoline climbed 6.68 cents, to $3.9866. Since the U.S. weighted average wholesale price slipped by 3 cents in the period, timing allowed for retail margin recovery of 9.8 cents, to a far healthier 39.63 cents.
Refiners hadn’t fared as well, what with oil price hikes meeting with rack price cutting, so they suffered a loss in gasoline margin. It was grossly uneven, since wholesale prices were plunging in some areas, especially unbranded in PADD 2, while skyrocketing in others, especially branded in the PADD 5. As even lawmakers and tax/fee collectors know, California and the West live on a knife-edge super-sensitivity to any supply hiccups due to supercharged compliance costs. When supply in the West normalizes, comparatively speaking, racks will logically tumble and offset some of the remaining price bumps from crude oil that may materialize elsewhere. In that event, refiner margin on gasoline may get well so that the whole downstream may be comfortable.
But crude oil’s supply-demand balance, and resulting prices, can upset anything it wants. There is merit to the increasingly popular idea that from here, considering a deeply embedded global supply tightness, only a recession would right the ship. With the demand destruction would come lower oil and refined product prices.
U.S. gasoline may already be playing its part in that rebalancing. Regardless of the colorful idea of Labor Day as joy-riding gasoline use, our gasoline demand shrank many days prior to that holiday and also afterwards. Gasoline demand is in fact down both now seasonally, and year-on-year and is a measure of consumer strain. Instead of a discount to year-ago, there is a price penalty of more than 20 cents per gallon (CPG) in today’s average price versus the price one year ago.
There is now cushion, but far from a plump one, in gasoline supply, as U.S. refiners are cranking out product a bit aggressively for this time of year. Latest: a 91.9% utilization rate for all the nation’s refining capacity.
In high-cost Los Angeles, the market released retail gasoline margin to gain 12.96 CPG in the past two weeks. But the Sept. 22 margin is just 42.07 cents, low in these times for this place. Margin had been a nearly naked 29.11 CPG on Sept. 8, when the weighted wholesale price rose 45.04 cents while retail continued with a steep 60.62-cent hike. In Los Angeles, price volatility has nothing on margin volatility, ensuring a bumpy ride.
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.