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Opinion: OPEC’s Muted Oil Price Effect

Pump price up, but overall 2016 showed a big drop

CAMARILLO, Calif. -- The U.S. average retail price of regular-grade gasoline rose 5.83 cents per gallon (CPG) during the past two weeks to $2.2580, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations. It came in large part from the oil market’s response to the Organization of the Petroleum Exporting Countries’ (OPEC) Nov. 30 agreement with members and some cooperating countries to reduce oil output. 

A smaller portion of the pump price increase came from small improvements in gasoline margins of both U.S. downstream sectors, refiners and retailers. Those margins are thin and remain less than celebratory.

The oil price boost was about one-third of what various observers had predicted would happen if OPEC were to formalize a cutback accord. Dec. 16 oil prices were up only about a nickel per gallon equivalent over what they were in late October. The futures markets, which are no slouches in oil-price-prediction circles, do not expect dramatic oil price increases within the coming year. The degree of compliance with the agreement, which is not in effect yet, is in doubt because participants have “cheated” in past agreements. The stronger U.S. dollar is another reason for muted crude-oil price increases.

This retail gasoline increase puts the current price 20 cents above its year-ago point. Combined with other factors, including the seasonal demand curve, recent very cold weather and the Christmas and new year holidays, which tend to reduce driving, the current price premium over the Dec. 18, 2015, price is discouraging gasoline demand.

Historically, the price is low. The 2016 price is a discount of 31 cents under the 2015 calendar year price, and $1.21 below the 2014 price. It is an even more striking $1.36-per-gallon bargain vs. the 2013 price. And under the 2012 price, the 2016 average is a discount of $1.49 per gallon.

Retail margin stands at less than 15 CPG for regular-grade gasoline, the lowest since Sept. 9. Even though prices within the three main wholesale gasoline price channels of trade may have plateaued for now, further margin improvements may be hard to come by. In two Texas markets, El Paso and Houston, both margin and retail price are among the lowest nationally. In El Paso’s case, margin was narrow Nov. 18 and has glowed red ever since. It’s also ugly in Houston, where a margin gain of less than a nickel leaves retailers with a mere 6.36 CPG on average. Many station operators around the country are hunkering down to tough it out over the next several days, OPEC or no OPEC.

Camarillo, Calif.-based Lundberg Survey Inc. is an independent market research company specializing in the U.S. petroleum marketing and related industries. Click here for previous Lundberg Survey reports in CSP Daily News.
 

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