Opinion: Pump Price Up, but Not for Long

Crude oil and gasoline supply suggest declines ahead: Lundberg

CAMARILLO, Calif. -- Pump prices have risen nearly 4 cents in the past month, but they now appear likely to drift down, at least in the short term, according to the most recent Lundberg Survey of approximately 2,500 U.S. gas stations.

Lower oil prices and high gasoline production by U.S. refiners are pressuring pump prices to drop. Both oil producers and refiners have effectively already contributed to a partial margin recovery for gasoline retailers.

The national average retail price of regular grade rose 1.9 cents per gallon (CPG) in the past two weeks, while the average volume-weighted wholesale gasoline price dropped close to 3 cents during the same period. So retail margin enjoyed a much needed improvement of more than 4 cents.

But current margin is barely more than 16 CPG, inferior to a healthy norm, especially considering many retail business costs have been swelling and are all but sure to continue rising.

The drop in crude-oil prices amounts to a crash of about 12 CPG. This is aiding refiners, who are now benefiting from gasoline margin recovery by keeping part of those oil price cuts, at least for now. They shared the rest by cutting wholesale gasoline prices.

U.S. refinery output is very robust, with that abundance reflected in lower rack prices. Also, refiners’ wholesale gasoline price cuts to buyers are being enabled to a degree by a crash in the price of a Renewable Identification Numbers (RIN), which is a must-buy for those short of sufficient ethanol sales to comply with the federal requirements. So lower RIN prices indirectly made a contribution to retail margin gain, too.

The past month’s pump price rise of nearly 4 cents is likely about to end thanks to generous supply of both crude and gasoline. A modest drop of 2 to 4 cents from the March 10 U.S. average regular-grade price of $2.3489 may be imminent unless oil prices rebound quickly. The oil price gain from production cutbacks by the Organization of the Petroleum Exporting Countries (OPEC) and collaborating countries in late 2016 has now been erased, with no big oil price-increase factor on the near horizon.

Beyond the next few weeks, where gasoline prices go will depend on demand in addition to oil prices. Gasoline demand will manifest its seasonal liberation due to longer daylight hours, punctuated by a congratulatory bouquet it just got from Daylight Saving Time on March 12. Dovetailing with that price effect will be higher-cost summer-blend product reaching most of the nation during April. After that plays out, OPEC will meet again in late May to revisit its oil supply-reduction scheme.

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.

Trilby Lundberg is publisher of the Lundberg Survey, a survey of approximately 2,500 U.S. gas stations.

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