Last week, OPEC and its partners announced the plan to restore portions of its hefty production cuts starting this October. The market over-reacted at first, but even after a partial correction, West Texas Intermediate (WTI) crude oil was down $4.53 per barrel over the past three weeks to $75.53 per barrel. Also, Venezuela pushed out extra volumes of petroleum last month as U.S. sanctions were to be re-imposed this month, expanding supply.
U.S. refiners then did it one better, cutting wholesale gasoline prices to their accounts by 25.12 cents in the unbranded channel and 22.87 cents in branded, on average per Lundberg data. They also greatly upped their combined capacity utilization rate, a full five points to 95.4%, swelling the nation's gasoline stocks. They are vigorously chasing sales as U.S. gasoline demand is in shrink mode.
Thus, refiners cut into their own business margin on gasoline. It isn't an unusual occurrence in the abundance-loving industry, and eventually refiners will need to seek some margin recovery.
Gasoline demand has fallen for months, and it did so even during the Memorial Day period, notwithstanding the rosy jobs report. Unemployment has deepened and high inflation persists. But favorable to motorists is the 8-cents-per-gallon (CPG) price break with the current pump price that amount under its year-ago point.
At retail: The national average price of regular-grade gasoline dropped 11.79 CPG, to $3.5822. The total retail price cut over seven weeks is a helpful 19 cents, according to the most recent Lundberg Survey of U.S. fuel markets.
The retail gasoline sector fared well in these three weeks with a 10.03-CPG gain, to a not too shabby average 45.62 cents. Unless oil prices fall further, this may well be the end of the retail price cutting for now as retailers, like refiners, chase sales at a time of declining demand.
Margin Experience in Two Markets According to Lundberg Reports: Seattle and Salt Lake City.
Salt Lake City retailers' average margin on regular was shaved nearly 7 cents. The weighted wholesale price drop of 18.08 cents was exceeded by retail price's decline of 24.54 cents. Margin is currently 44.15 cents on average.
Seattle, among the highs nationally for prices and costs, had a jump of 20.81 cents in regular grade margin, to $1.0187 a gallon. The retail price slide of 14.19 cents was far outpaced by wholesale's big drop of 35 CPG.
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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